Productivity Growth in Thailand and Indonesia: How Agriculture Contributes to Economic Growth

Total factor productivity growth in the agricultural, industry and services sectors is studied in this paper for two countries: Thailand and Indonesia, over the period 1981 to 2002. A feature of the analysis is the decomposition of aggregate total factor productivity growth into two components: productivity growth in individual sectors; and the reallocation of resources from low productivity to high productivity sectors. The results show that in both countries virtually all factor productivity growth at the sectoral level derives from agriculture, but the reallocation of resources away from agriculture was a much larger source of aggregate productivity growth.