Faster Total Factor Productivity Growth Research Articles

Excess Labor Supply, Structural Change and Real Exchange Rate

Since China joined the World Trade Organisation in 2001, the Chinese economy has grown rapidly, especially the tradable goods sector. However, the Chinese real exchange rate did not exhibit a persistent and stable appreciation until 2005. This is a puzzling fact that is inconsistent with theories. This paper documents several stylized facts during the economic transition and argues that two features of the Chinese economy may help explain the puzzling real exchange rate pattern for the Chinese economy: i) the faster total factor productivity (TFP) growth in the export sector compared with the import sector; and ii) excess supply of unskilled labor. We construct a small open economy model with an H-O trade structure. We show that, due to heterogeneous skilled labor intensity in export and import sectors, faster TFP growth in the export sector over that in the import sector will lead to the decline of return to capital and a rise of the skilled wage. Therefore, the decrease of return to capital and the persistent low unskilled wage, which is caused by the excess supply of unskilled labor, inhibit the rise in the relative price of non-tradable goods to tradable goods and the appreciation of the real exchange rate. Furthermore, we develop a dynamic small open economy model with multiple tradable goods sectors. We show that the model does fairly well in explaining the Chinese real exchange rate and other stylized facts in the economic transition. Finally, we demonstrate that our hypotheses are supported by cross-country evidence.

Structural changes and the real exchange rate dynamics

Since China joined the WTO in 2001, the Chinese economy has grown very rapidly, especially, the tradable goods sector. However, the Chinese real exchange rate did not exhibit a persistent and stable appreciation until 2005. This is a puzzling fact that is inconsistent with theories. This paper documents several stylized facts during the economic transition and argues that two features of Chinese economy may help explain the puzzling real exchange rate pattern for Chinese economy: (i) the faster total factor productivity (TFP) growth in export sector compared with the import sector; (ii) excess supply of unskilled labor. Our hypotheses are supported by cross-country evidence. Furthermore, we construct a small open economy model with an H-O trade structure and show that, due to heterogeneous skilled labor intensity in export and import sectors, the faster TFP growth in the export sector over that in the import sector will lead to the decline of return to capital and the rise of skilled wage. Therefore, the decrease of return to capital and the low unskilled wage, which is caused by the excess supply of unskilled labor, inhibit the rise in the relative price of non-tradable goods to tradable goods as well as the appreciation of real exchange rate. Finally, we show that a dynamic small open economy model with multiple tradable goods sectors does fairly well in explaining the Chinese real exchange rate and other stylized facts in the economic transition.

Achieving sustainable irrigation water withdrawals: global impacts on food security and land use

Unsustainable water use challenges the capacity of water resources to ensure food security and continued growth of the economy. Adaptation policies targeting future water security can easily overlook its interaction with other sustainability metrics and unanticipated local responses to the larger-scale policy interventions. Using a global partial equilibrium grid-resolving model SIMPLE-G, and coupling it with the global Water Balance Model, we simulate the consequences of reducing unsustainable irrigation for food security, land use change, and terrestrial carbon. A variety of future (2050) scenarios are considered that interact irrigation productivity with two policy interventions— inter-basin water transfers and international commodity market integration. We find that pursuing sustainable irrigation may erode other development and environmental goals due to higher food prices and cropland expansion. This results in over 800 000 more undernourished people and 0.87 GtC additional emissions. Faster total factor productivity growth in irrigated sectors will encourage more aggressive irrigation water use in the basins where irrigation vulnerability is expected to be reduced by inter-basin water transfer. By allowing for a systematic comparison of these alternative adaptations to future irrigation vulnerability, the global gridded modeling approach offers unique insights into the multiscale nature of the water scarcity challenge.

Interregional Disparity and Convergence Tendency: An Empirical Study of TFP Growth in China

This paper presents an empirical analysis to improve our understanding of the catch-up and convergence tendencies of total factor productivity (TFP) growth across the Chinese provinces over 2003–2012. After controlling for the province heterogeneity, our regression results show that the Chinese provinces exhibit significant conditional convergence in TFP growth over the sample period. This indicates that province-specific factors play an important role in determining provincial TFP growth. Economic policies conducive to faster TFP growth should thus be directed to the relevant factors underlying the province heterogeneity. This paper suggests that openness to international economic activities and human capital accumulation are two important factors that promote TFP growth, both of which rely on a salutary social infrastructure.

Patents and Productivity Growth: Evidence from Global Patent Awards

Using patents granted to firms in 59 countries by 76 patent offices to measure innovation, we study the relation between innovation and productivity growth at the country-level. Consistent with endogenous growth theory, patents forecast faster total factor productivity growth. This relation is stronger in countries where patents are widely held by small private firms rather than concentrated in public firms. Relatedly, patents granted by local patent offices have stronger growth effects than those granted by the trilateral patent offices (U.S., Europe, and Japan). Greater intellectual property rights weaken the patent-growth relation, suggesting strong patent protections slow innovation diffusion.

China's regional agricultural productivity growth in 1985–2007: A multilateral comparison1

AbstractIn this study, we estimate total factor productivity (TFP) growth as well as multilateral TFP index for 25 contiguous China provinces over the 1985–2007 period. Agricultural output growth for each province was decomposed into TFP growth and input growth, where input growth was further disaggregated into contributions from growth of labor, capital, land, and intermediate goods. Over the study period, TFP growth contributed 2.7 percentage points to output growth annually, which was slightly higher than the input growth contribution of 2.4 percentage points per annum. On average, the annual rate of productivity growth peaked during 1996–2000, at 5.1%. It slowed in 2000–2005 to a rate of 3.2% per annum and declined in the most recent years (2005–2007) to −3.7%. Differences in productivity among regions persisted over the entire period. The tendency toward faster TFP growth in relatively well‐off coastal regions may imply a widening of regional inequality.

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Technology capital: the price of admission to the growth club

We assess long-run patterns of global agricultural productivity growth between 1970 and 2005 and examine the relationship between investments in technology capital and productivity. To measure agricultural total factor productivity (TFP) we employ a Solow-type growth accounting method to decompose output growth into input and TFP growth. For technology capital we construct two indexes reflecting national capacities in agricultural research and education-extension for 87 developing countries. We then correlate technology capital levels with long-term growth rates in agricultural TFP. Our findings show that global agricultural TFP growth as a whole accelerated since 1980, although performance was very uneven across developing countries. TFP growth rates were significantly influenced by technology capital. Marginal improvements to research capacity, given a minimal level of extension and schooling existed, were associated with faster TFP growth. However, marginal increases in extension-schooling without commensurate improvements in research capacity did not improve productivity performance.

Potential output growth in several industrialised countries a comparison

In this paper, we present international comparisons of potential output growth among several economies—Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States—for the period 1991–2004, for which we construct consistent and homogenous capital stock series. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb–Douglas function and Total Factor Productivity (TFP) is estimated allowing for possible breaks in the deterministic trend. The results confirm that over the considered period the potential gross domestic product growth has been faster in the United States than in other studied countries, reflecting a combination of higher labour contribution and faster TFP growth. Overall, this paper might help to shed some light on cross-country differences in economic performance over the recent period.

Potential Output Growth in Several Industrialised Countries: A Comparison

In this paper, we present international comparisons of potential output growth among several economies -Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States- for the period 1991-2004, for which we construct consistent and homogenous capital stock series. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb-Douglas function and Total Factor Productivity (TFP) is estimated allowing for possible breaks in the deterministic trend. The results confirm that over the considered period the potential GDP growth has been faster in the United States than in other studied countries, reflecting a combination of higher labour contribution and faster TFP growth. Overall, this paper might help to shed some light on cross-country differences in economic performance over the recent period.

Human Capital and Technology Diffusion

This paper generalizes the Nelson-Phelps catch-up model of technology diffusion. We allow for the possibility that the pattern of technology difusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation. We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for a cross-section of nations from 1960 through 1995. Our results support the logistic specification, and are robust to a number of sensitivity checks. Our model also appears to predict slow total factor productivity growth well. 22 of the 27 nations that we identify as lacking the critical human capital levels needed to achieve faster total factor productivity growth than the leader nation in 1960 did achieve lower growth over the next 35 years.

Entry and Productivity Growth: Evidence from Microlevel Panel Data

How does entry affect productivity growth of incumbents? In this paper we exploit policy reforms in the United Kingdom that changed entry conditions by opening up the U.K. economy during the 1980s and panel data on British establishments to shed light on this question. We show that more entry, measured by a higher share of industry employment in foreign firms, has led to faster total factor productivity growth of domestic incumbent firms and thus to faster aggregate productivity growth. (JEL: L5, L10, O31, O4)

Human Capital and Technology Diffusion

This paper generalizes the Nelson-Phelps catch-up model of technology diffusion. We allow for the possibility that the pattern of technology diffusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation.We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for a cross-section of nations from 1960 through 1995. Our results support the logistic specification, and are robust to a number of sensitivity checks.Our model also appears to predict slow total factor productivity growth well. 22 of the 27 nations that we identify as lacking the critical human capital levels needed to achieve faster total factor productivity growth than the leader nation in 1960 did achieve lower growth over the next 35 years.

Asian Agricultural Productivity and Convergence

This paper measures agricultural total factor productivity (TFP), for eighteen Asian countries, from 1965 to 1996. TFP is measured by calculating the Malmquist index with respect to the sequential frontier, which is appropriate when the cross section is relatively small. The results show that half the countries have experienced negative productivity growth, due to losses in technical efficiency combined with stagnation in technological progress. Both cross‐section and time series tests show that there is no evidence of convergence in agricultural productivity for these countries. The less productive countries are falling further behind, rather than catching up. Finally, comparisons with Africa show that although Asia has had faster TFP growth than Africa, three of the five African regions (East, Central and Southern) have grown faster than any of the Asian regions.

Falling Real Wages During an Industrial Revolution

The paper shows that the emergence of a relatively more capital intensive, production sector with relatively faster total factor productivity growth than the existing less capital intensive, cottage production sector will always slow down real wage growth if capital and labor are imperfect substitutes. Real wages will actually fall temporarily if the industrial production sector experiences sufficiently fast total factor productivity growth. This conclusion does not depend on the effect of technological change on the labor demand of industrial firms: Rapid technological change could, in particular, rapidly increase the labor demand of industrial firms, and real wages would still fall.