Structural Change behind GDP Growth Rates via Key Indicators: Chile 1996-2015

J.M Albala-Bertrand

doi:10.5539/ibr.v11n8p38

Abstract

This paper deals with the change of some aggregate structural indicators in Chile over the 20-year period 1996-2015. We first produce an accounting growth decomposition to assess the changes in the contribution of capital productivity, capital intensity and labour participation to the growth rate of output per capita as well as the growth rate of labour income participation in national income. We then combine an accounting growth decomposition with a standard production function growth accounting to assess the contribution of both capital productivity and capital intensity to total factor productivity (TFP). To complement the latter, we produce optimal estimates of incremental capital productivity and incremental income elasticity to capital by means of a linear programming exercise. Our main conclusion is that capital intensity, rather than capital productivity or labour participation, has been the main growth contributor. TFP has contributed in a decreasing way from positive to negative over our sub-periods, so adding to and subtracting from GDP growth over time, with the main positive contributor to TFP growth systematically being a proportion of capital intensity.

Highlights

There has been a good deal of macroeconomic studies about Chile's productivity and related issues
It shows that the most important positive contributor has been capital intensity, which for the whole period represents around 70% of the per-capita GDP growth rate, compensating for the negative contribution from the growth rate of capital productivity
We propose a decomposition of total factor productivity (TFP) by combining an accounting decomposition with a standard production function growth accounting

Summary

Introduction

There has been a good deal of macroeconomic studies about Chile's productivity and related issues. The income elasticities of capital and labour are assumed constant over all the target period, which may be unlikely (e.g. Beltran 2017, Fuentes, Larraín & Schmidt-Hebbel, 2006; Dipres; CNP) This means that the results necessarily carry a baggage of assumptions that may not tally with the reality of especially relative latecomers and/or countries with unstable growth, let alone those undergoing significant structural change, as has been the case of Chile. We show that the growth contribution of capital productivity has been becoming small and/or negative, and that of labour participation positive but secondary to capital intensity The latter has taken the bulk of supporting both GDP growth and total factor productivity. It has not just been physical capital, but the important changes in economic and social structure required to use it and absorb it

General Background

Discrete Growth Decomposition Analysis

Findings

Conclusion