|Number of employed, 15+|International Labour Organization|
|---|---|
|Physical capital stock|Penn World Table 9.0 (Feenstra et al 2015)|
|GDP|World Bank|

# _Resource rents_

A major challenge to including natural resources in TFP has been the lack of information on natural resources rents, their share in GDP and growth over time. The introduction of data on rents derived from natural resource use and extraction, as appears in the _Wealth of Nations_ database, makes it possible to partition value added into the sum of wages, resource rents and profits derived from fixed capital. Because unit resource rents are measured as price minus the economic cost of extraction, this measure excludes both wages and the opportunity cost of capital. It is therefore possible to neatly divide profits into a natural resource rent component and a profit on fixed capital component. Since the three components (including wages) sum to total value added, a defensible measure of TFP growth can be derived as the growth rate of GDP minus the weighted average growth rate of the three factors of production, where the weights are the shares of each factor in value added.

Considering the agriculture sector, the natural resource in question is the land used for crop and livestock production. As a practical matter, however, the quantity of agricultural land in any given country is more or less fixed – with the exception of countries where land is still being converted from forest or grassland or wetlands to agricultural uses. In what follows we therefore opt to treat agricultural produce, both food and non-food, as the natural resource in question, and the associated land rents on agricultural production as part of the natural resource share of value added. To measure the growth in agricultural output as a factor of production we use the FAO’s index of agricultural production (both food and non-food) measured in real terms.

While this approach to agriculture may appear artificial, it exactly parallels how timber production is treated in TFP growth estimation. The wood itself is considered to be the natural resource, and the growth rate of the quantity of timber produced is calculated year on year based upon timber production measured in cubic meters. The share of timber production in value added is the associated resource rent on timber harvest – which, arguably, could also be viewed as a type of land rent.<sup>4</sup>

# _Labor and the self-employed_

In developing countries, particularly low-income countries, self-employment is a large share of total labor inputs– in Sub-Saharan Africa, for example, the share of formal wages in value added can be as low as 10%. For the share of labor in the equations above, s� as measured in the SNA is too low because it includes only formal employment. The Penn World Table data on total compensation of labor add other components of value added (part of mixed income in developed countries, agricultural value added in low-income countries) to the SNA figures for the compensation of employees. As a result, the sum of returns to capital, labor and natural resources

> 4 Note that there is some risk of double-counting the contribution of forests to TFP growth because, according to SNA principles, _plantation_ forest outputs are measured as part of production in the agriculture sector.

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