Aggregate Productivity Growth Research Articles

Aggregate productivity, economic fluctuations, and export orientation: Evidence from India

Understanding the cyclicality in aggregate productivity helps answer whether the economy allocates resources efficiently or not. The paper analyses the sources of aggregate productivity growth, such as direct efficiency gain within-plants, allocative efficiency gain, and gains due to entry and exit during economic fluctuations. In particular, we exploit the economic shock of the Great Recession to analyse the validity of the 'Cleansing’ or ‘Scarring’ effect of recession and 'Schumpeterian Darwinian Selection' for Indian manufacturing. The rise and fall of within-plant and net-entry effects during the economic fluctuations explains the pro-cyclicality of productivity growth. Plants in export-oriented industries are crucial in explaining the pro-cyclicality. Negative external shock to exporting sectors during 2008–09 shifted resources from more productive to less productive plants. The relatively productive exporters exited the markets following the global crisis, scarring the economy. Nonetheless, the positive effect from the net-entry exit of plants during the economic downturn makes the 'Schumpeterian approach of Darwinian Selection' valid.

Job Creation and Job Destruction in Indian Manufacturing

The reallocation of jobs is crucial in determining the movement of workers, the unemployment rate, the wage dynamics, the life cycle of firms and industries and the aggregate productivity growth. This article analyses job reallocation in terms of simultaneous establishment-level job creation and job destruction in Indian organised manufacturing. The study employs longitudinal data from the Annual Survey of Industries (ASI) from 2004–2005 to 2014–2015 and the methodology stated in Davis and Haltiwanger (1992) to analyse job reallocation. During the expansionary periods, job creation and job destruction were rising, while during the contractionary period from 2008 to 2009 onwards, job creation declined, whereas job destruction was constant. The reallocations of jobs varied substantially across the narrow heterogeneous sectors defined by observable plant characteristics. The rate of these simultaneous job creation and destruction processes is high for many establishments and accounts for a significant portion of worker reallocation. However, the consistency of these newly created and destroyed jobs is low. Theories like ‘passive learning’ and ‘between-sector employment shifts’ partially explain this phenomenon of high job reallocation. The study provides useful policy insights to improve manufacturing employment during the process of frequent job creation and destruction, especially in a developing economy. JEL Codes: J01, J23, J21, J40, F63

Re‐examining the effect of heat and water stress on agricultural output growth: How is Sub‐Saharan Africa different?

AbstractWe examine the impact of climate driven heat and water stress on aggregate crop production growth, paying particular attention to the Sub‐Saharan Africa (SSA) region as opposed to studies with a global or Non SSA focus. Using gridded data on temperature and precipitation, which is crop weighted and averaged to the national level, we generate measures of stressors that capture average temperature and precipitation shocks, and extreme punctuated events like dry spells and heat waves for 38 countries in Sub Saharan Africa between 1979 and 2016. We find in general that compared to estimates with a global or non SSA focus, the detrimental effect of increased annual temperature has been overstated, while the damage caused by shorter‐term extremes like dry spells and heat waves has been understated. This implies that region specific analysis is key in developing a more comprehensive understanding of climate change. Such analyses are pivotal for climate policy development allowing for more spatially efficient allocation of limited financial resources, and greater accuracy in estimating adaptation effects.

Impact of a free trade agreement on unemployment and productivity growth in Nigeria

This research investigates the impact of a free trade agreement on unemployment and productivity growth in Nigeria over the period 1981–2019. Data was collected from the World Bank Development Indicators (WDI) online database as of 2020. The study employed various analytical methods, including unit root tests, autoregressive distributed lag (ARDL) bound tests, error correction models (ECM), and cumulative sum (CUSUM) and cumulative sum of squares (CUSUMSQ) tests to assess data stability. The ARDL bound test statistics (F-statistics) of 4.26914 and 7.680624 exceeded the critical values for both I(0) and I(1) bounds, indicating a meaningful relationship between the variables. In the long run, physical capital, human capital development, and economic growth were found to have a negative impact on unemployment, with statistical significance. Additionally, sectoral productivity growth negatively influenced aggregate productivity growth. The error correction model (ECM) indicated a weak speed of adjustment, suggesting that the disequilibrium takes around 13% of the time to return to equilibrium annually. Based on these findings, the study recommends the implementation of safeguards to protect vulnerable industries, particularly in manufacturing and agriculture. Additionally, the government should focus on fostering human capital development by ensuring the availability of suitable support measures.

High tech business entry in the pandemic era

The COVID-19 pandemic and its aftermath have featured a surge in business entry (Decker and Haltiwanger 2024). A natural question is whether the elevated entry seen in recent years will have positive implications for aggregate productivity growth given the historically important role of business entry for productivity dynamics (Decker et al. 2014, Alon et al. 2018).

Firm-level financial frictions and aggregate allocative efficiency

Abstract Capitalizing on the productivity decomposition proposed by Olley and Pakes, we analyse the role of financial factors behind the relatively muted post-crisis rebound in productivity compared to previous upturns in Europe. First, we provide an Ordinary Least Squares framework to decompose the index of sector-level productivity into trend and allocative efficiency components. We then extend our approach to estimate the contribution of firm-level confounders to the sector-level allocative component. Secondly, we find that financial leverage played an important role in explaining the change in aggregate productivity growth in Europe between 2004 and 2017. Thirdly, focusing on Northern and Western Europe, we show that the productivity potential could not be fully exploited due to access to credit conditions. Specifically, reducing collateral bottlenecks could more than double the effectiveness of financial leverage in spurring productivity growth in this region between 2014 and 2017.

Aggregate Productivity Growth, Financial Development, and Entrepreneurship: Evidence from China

Aggregate Productivity Growth, Financial Development, and Entrepreneurship: Evidence from China

СОЦИАЛЬНО-ЭКОНОМИЧЕСКИЕ АСПЕКТЫ РОСТА ПРОИЗВОДИТЕЛЬНОСТИ ТРУДА

The subject of the study is the main social and economic aspects of labor productivity growth in the Russian economy. The purpose of the paper is to substantiate the dependence of some significant social processes on increasing the level of labor productivity in the country’s economy. The relevance of the study is associated with the need for a clearer awareness of the need for essentially no alternative measures to increase labor productivity, both on the part of the state and business. The scientific novelty of the article lies in the clear identification of connections between the growth of aggregate labor productivity, and economic and social processes: achieving sustainable competitiveness of the country’s economy, curbing inflation, overcoming mass poverty, lowquality labor migration, ensuring a high level of demand for productive labor. The research reveals the practical significance of such theoretical categories as the marginal product of labor, the marginal value of labor in maintaining widespread employment in the economy, and labor productivity for the competitiveness of the economy. The research methods are analysis, systematization, synthesis, induction, and deduction. As a result of the study, the key role of increasing general economic labor productivity to streamline some pressing social processes and achieve positive economic and social indicators was identified and substantiated.

Productivity impacts of R&D and non-R&D modes of technological change for incumbents and entrants in a catching-up economy

Considering the importance of innovation activities, especially that of young firms, for aggregate productivity growth, the study, using Estonian Community Innovation Survey (CIS) data, compares the productivity implications of R&D, capital accumulation, and innovation output for entrants and incumbents and contrasts the findings to those for Germany, a representative developed economy. First, in contrast to the developed economies, the percentage of innovating firms is much larger than the percentage that invests in R&D, which indicates the prevalence of non-R&D, such as ‘doing, using, and interacting’ (DUI), mode of innovation. Second, contrary to findings for the developed economies, the impact of R&D on productivity for the entrants and incumbents does not differ. However, the impact of innovation output – many of which are a result of DUI mode – on productivity is much higher for the entrants. Third, despite the adverse sectoral composition typical of catching-up economies, Estonian incumbents, who are the primary carriers of ‘scientific and technologically-based innovative’ (STI) activities, are as good as German incumbents in translating R&D into productivity gains. Fourth, while embodied technological change through capital accumulation is found to be more effective than R&D for improving productivity, the effectiveness is higher for R&D performing firms. Our results suggest that certain policy recommendations for spurring productivity growth in developed economies may be unsuitable for catching-up economies.

Informality and aggregate labor productivity growth: Does ICT moderate the relationship?

This paper attempts to understand whether digitization, measured in terms of ICT capital and penetration of the internet, helps reduce the negative impact of informality on labor productivity growth, especially in emerging & developing countries. Informality is argued to be a drag on productivity growth in emerging & developing countries. We argue that increased use of digital technologies can help informal sector reduce transaction and coordination costs; enhance the linkages between the informal and formal sectors; facilitate the integration of the informal sector in the global value chain; and also increase the potential for the formalization of the economy in general - all of these are likely to contribute to aggregate productivity growth. Our econometric analysis using panel data for 118 countries from 1997-2017 provides some evidence of ICT capital deepening helping to reduce informality's negative impact on aggregate productivity growth. However, the moderating effect is modest compared to the magnitude of the negative impact of informality, indicating the need for a faster and more intense digitization efforts in emerging & developing economies. Moreover, investments in complementary factors including skills and infrastructure are imperative to fully unleash the potential of ICT in reducing the negative impact of informality.

Does equity market openness increase productivity? the dual effects of Shanghai-Hong Kong stock Connect program in China

This study investigates the dual effects of equity market openness on aggregate total factor productivity (TFP) growth and finds that gains in aggregate TFP can be driven by within-firm and reallocation effects across firms. Using a quasi-natural experiment based on China’s Shanghai-Hong Kong Stock Connect program, we find that equity market openness has a positive effect on firms’ TFP. Stock price efficiency is the mechanism underlying this improvement. Equity market openness reduces firms’ stock mispricing and improves corporate governance and investment efficiency through the feedback effect, thereby increasing TFP. Finally, we argue that equity market openness induces significant growth in capital stock and employment among high-TFP firms, driving them to achieve rapid growth and greater market share. The reallocation effect of equity market openness translates into aggregate productivity gains. This empirical study considers stock pricing as a mechanism to shed light on the dual effect of equity market openness on TFP growth.

Productivity and reallocation under monopolistic competition: A Micro panel data analysis

AbstractThis article studies the structural aggregate productivity growth (APG) decomposition with demand‐ and supply‐side controls, determines comparative statics predictions for firms and economic outcomes and examines patterns of input distortions. By moving from price‐taking conditions to markets featuring markup heterogeneity for product varieties, the paper finds amplification of production inefficiency from −3.61% to −11.41% and amplification of total factor reallocation from 0.15% to 8.91%. The productivity results are robust to structural variations in the demand function, firm scale adjustment and firm growth. Similarly, input reallocation is robust to variation in demand structure and plant expansion. Furthermore, reallocation under common markups among all firms is robust to reallocation under heterogeneous markups among larger firms. Alternatively, large firms face demand inelasticities and charge higher markups thereby mimicking the behaviour of the survey of all firms. Under autarky, small unproductive plants charge higher markups than their small efficient counterparts. Demand elasticity increases (decreases) with industry output for smaller (larger) plants. Finally, a unit increase in capital intensity for resource‐constrained plants raises labour distortions and reduces capital distortions while reducing capital distortions for resource‐unconstrained firms.

Macroeconomics: An Overview of Key Concepts and Policies

This scientific journal article provides an in-depth analysis of macroeconomics, focusing on its fundamental concepts and policies. Macroeconomics is a vital field in economics that examines the behavior of an entire economy, studying factors like aggregate production, unemployment, inflation, and economic growth. This article aims to shed light on the key principles governing macroeconomic phenomena and the policies employed to stabilize and improve economic conditions. By understanding macroeconomics, policymakers can make informed decisions to foster sustainable economic development.

Intangible capital and productivity divergence

Understanding the causes of the slowdown in aggregate productivity growth is key to maintaining the competitiveness of advanced economies and ensuring long‐term economic prosperity. This paper provides evidence that investment in intangible capital, despite having a positive effect on productivity at the micro level, is a driver of the weak productivity performance at the aggregate level as it amplifies the divergence between a group of “frontier” firms and the rest of the economy. Using firm‐level data, we find that the effect of intangible capital on productivity is heterogeneous across firms within industries. Documenting the existence of divergence in productivity growth between top intangible users and the rest of firms at the industry level, we find that industries where this gap is larger are also those industries where the heterogeneity in the effect of intangible capital is highest and where average productivity growth was lower. Thus, the evidence supports the view that the use of intangible capital plays a role in explaining weak aggregate productivity growth, by intensifying differences between firms.

The impact of firm-level Covid rescue policies on productivity growth and reallocation

We evaluate the impact of Covid-19 rescue policies on both firm-level and aggregate productivity growth, exit, and creative destruction. Using administrative data on the universe of firms’ support mechanisms in Flanders over 2019–2021, we first estimate the causal impact of this support program on firm-level outcomes. Firms that received support saw a 4%–5% increase in productivity, compared to similar firms that applied for, but did not obtain support. The productivity premium effect is temporary however: by the last quarter of 2021, treated firms are indistinguishable from untreated firms. Support measures also drastically reduced firm failure. The propensity to exit the market was 45% lower for treated firms, and if no support would have been issued, aggregate firm exit would have increased by 9%. We decompose aggregate productivity growth, a share-weighted average of firms’ productivity growth rates, into several components. Within firms over time, both treated and untreated firms contribute positively to aggregate productivity growth. There are signs of insufficient creative destruction on both the extensive margin (firm entry and exit) and intensive margin (reallocation of market shares to more productive firms) during the crisis. However, insufficient reallocation was already present well before the crisis, and there is no evidence that this inefficiency is driven by the contribution of treated firms in particular. Firm-level support measures helped firms to avoid exit, and to temporarily increase productivity, while not altering the ongoing process of creative destruction in the aggregate.

Structural Change within the Services Sector and the Future of Cost Disease

Abstract In his seminal work, Baumol observed that developed economies suffer from cost disease, i.e., aggregate productivity growth falls because structural change reallocates production to services with low productivity growth. We document that cost disease importantly contributed to the productivity growth slowdown in the postwar U.S. To assess how severe cost disease may become, we build a model of structural change among the goods sector and broad services sectors. Calibrating the model to the postwar U.S. implies that broad categories of services are substitutes and the services with low productivity growth do not take over production. Simulating the calibrated model forward implies that future cost disease will be less severe than the past one.

Labour Taxes, Market Size and Productivity Growth

Abstract How do changes in labour taxes affect innovation and aggregate productivity growth? To answer this question, we propose a quantitative, general equilibrium growth model featuring product and quality innovation with endogenous market structure, estimate its parameters and provide empirical validation for the propagation mechanism of labour tax changes. We find that a temporary cut in flat-rate labour taxes produces a growth acceleration in aggregate productivity, permanently increasing the path of real GDP per capita. Moreover, such permanent gains are sizeable even without long-run growth effects.

Productivity slowdown and tax havens: Where is measured value creation?

Based on French firm-level data, we evaluate the contribution of the micro-level profit-shifting –through tax haven foreign direct investments– to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the years following the establishment in a tax haven, with an average estimated drop by 3.5% in apparent labor productivity. To isolate the contribution of multinational enterprises' (MNEs) tax optimization to the decline in productivity, we then exploit the 2006 Cadbury-Schweppes decision of the European Court of Justice limiting the extent to which member States can counter European MNEs' tax planning strategies. We find that multinational groups benefiting from that loosening of the legal constraints do exhibit a lower labor productivity following that ruling. Finally, given these firms' weight, our results imply an annual loss of 5.7% in terms of the aggregate annual labor productivity growth.

The Decomposition of Productivity Growth for India: Before and After 1991

We analyse how structural shifts affected India’s productivity growth from 1983 to 2017. The analysis is carried out within a broad three-sector level of disaggregation of the aggregate economy. We show that about 29% of the aggregate productivity growth of India during this period comes from structural change. While this contribution has declined since 2007, the remaining 71% of the productivity growth originates within the individual sectors, especially within the tertiary sector, which alone explains about 30% of this productivity growth. About a quarter of the total productivity growth that occurred prior to economic liberalization in 1991 is attributed to the tertiary sector. We found that between 2007 and 2017, the tertiary sector was responsible for almost 38% of India’s total productivity growth. This contribution is much larger than the contribution made by structural change, and, therefore, the significance of the tertiary sector in Indian economic expansion is growing. Our findings also indicate that the most structural change occurred between 1998 and 2007, which may have contributed to productivity increase in the decade.

“Digitalisation” and “Greening” as Components of Technology Upgrading and Sustainable Economic Performance

This paper explores the pace and direction of technological development by using a technology upgrade conceptual and measurement framework. This approach is applied to a sample of 164 economies worldwide between 2002 and 2019. Within the framework of technology upgrading, the paper focuses on digitalisation and “greening” as its two significant structural features. We explore their relationship with different components of technology upgrading and the relationship between technology upgrading components and different indicators of macroeconomic productivity. We have adopted a longitudinal fixed effects regression method with control for unobserved heterogeneity, clustered standard errors, and time dummies. Our results show that the growth of research and development (R&D) capabilities does not translate into aggregate productivity growth. There is a lack of unconditional relationship between aggregate productivity growth, digitalisation and greening. However, there are “latecomer advantages” to basic digitalisation for lower middle- and low-income economies and “latecomer liabilities” in the greening of the economy for upper-middle-income economies. In addition, levels of digitalisation and greening do not correlate, suggesting these two transformation processes are not yet integrated into ‘ICT-assisted greening’. When we control for income levels, the impact of components of technology upgrading on productivity is isolated to specific components and significant only for some income groups. The absence of a significant simultaneous effects of several components of technology upgrading on productivity points to large transformation failures. We conclude that the role of science and technology systems in spurring sustainable development would require a broad scope for science and technology (S&T) policies, their coordination, and integration with non-innovation policies.