ABSTRACT
This chapter reviews the concept of total factor productivity (TFP), the basic notion of the growth of productivity measurement of economic agents, reviews different approaches to the measurement of capacity realization, one of the two important components of TFP growth. It suggests an alternative methodology for measuring TFP and capacity realization based on a modified neo-classical production economics. Productivity measurement consists of a variety of measures that reveal various aspects of the input-output relation. On the basis of the neoclassical theory of production and distribution the growth accounting approach states that payments to factors exhaust total product under the assumption of competitive equilibrium and constant returns to scale. The econometric approach to productivity measurement is based on the estimation of either production or cost functions. The use of the stochastic frontier model for measuring productive performance of economic agents has become increasingly widespread.
