Stochastic technical change and procyclical TFP - The case of Italian agriculture

The paper questions the use of Total Factor Productivity (TFP) measures as a proxy for the technological level in Italian agriculture. TFP growth reveals a cyclical behaviour and a short-run component due to shocks on both the demand and supply sides. In order to identify real long-run technological change, a Kalman filter procedure is applied to a stochastic process depicting the generation of technical change induced by R&D and Extension expenditure. The empirical evidence reveals that short-term shocks greatly affect the traditional measure of productivity. A better indicator of technological progress can be obtained by estimating the long-run component of productivity, which seems to be significantly induced by R&D-Extension public expenditure.