Global Trends of Multi-factor Productivity: Estimation and Application

Abstract

Multi-factor productivity (MFP) compares the growth of gross domestic product with the growth of combined capital and labor inputs. The growth rate of MFP assumes theoretical significance because it represents the slope of the steady-state growth path, and hence is a major determinant of the long-term growth trend. This paper offers a balanced panel of the estimated growth rates of MFP for 24 OECD countries over 1986-2011. Based on the estimates of MFP growth, a number of notable trends in productivity growth are identified for the entire OECD area as well as for three major economies – the US, the Eurozone and Japan – within the OECD. In addition, this paper presents panel estimation results confirming that research and development (R&D) is a key determinant of MFP growth.