Driving Forces behind the Growth of Total Factor Productivity on the Regional Level : A case study of the Swedish FA-regions during 1990 - 2005

Production requires the input of capital and labour. Hence, economic growth can be assumed to follow from increased levels of these two factors. Policies aimed at increasing production may consequently successfully be focused on facilitating the accumulation of capital and labour. However, even when an economy has managed to reach the same quantities of input factors as a more prosperous neighbour, the level of the production might still differ. The explanation of this lies in what economists refers to as expression embracing the characteristics of the input factors and the conditions in which they operate. In this thesis a calculation of total factor productivity is carried out, using existing data on the Swedish FA-regions between 1990 and 2005 and the method the economist Robert Solow in the 1950’s. Thereafter an attempt is made to explain the differences between the regions by regression analysis, where the explaining variables are picked from the theories of endogenous growth and the new economic geography. The result of the analysis is quite vague and not very coherent with the presented theories. The lack of data on some of the relevant variables, which has enforced a couple of simplifying assumptions, is probably the reason for this. Nonetheless, some indications are given that increases in population and tax level, and decreases in the share of the population between the ages 55 and 64, might affect the total factor productivity in a positive direction. What is also interesting is that parts of the regression results are suggesting that the levels of the total factor productivity in the Swedish FA-regions are converging. The conclusion is that more and better data is needed before reliable results can be established from this kind of investigation