Growth Accounting Method Research Articles

World Productivity: 1996–2014

We use a new growth accounting method to quantify the drivers of world total factor productivity (TFP) growth during 1996–2014 and uncover four main results. World productivity growth is volatile from year to year. This mainly reflects reallocation of labor across country-industries. The contribution of country-industry level productivity growth to world productivity is relatively constant over time. This constancy masks that the increased importance of emerging economies offsets a productivity slowdown in advanced economies. After 2008, this offsetting effect dissipated and world TFP growth declined. These conclusions are robust to the inclusion of markups in the analysis. (JEL E23, E32, O30, O47)

Total factor productivity, transitional dynamics and endogenous growth accounting for Latin America: Evidence from two centuries’ data

AbstractThis study investigates the sources of economic growth for Latin American economies. With two centuries of data and extended growth accounting methods, the study shows that poor total factor productivity (TFP) growth is the key to understanding Latin America's low economic growth relative to other economies. Using a functional form of TFP growth, based on second‐generation growth models, furthers analyses to show some empirical evidence for growth induced by R&D, knowledge spillovers, educational attainment and the distance to the frontier. However, the magnitude effect is very small and when compared to the OECD countries, the gap between the TFP growth generating factors is very substantial. An intricate policy structure should be implemented for Latin America to foster an environment that is conducive to aid permanent TFP and economic growth.

FDI and Total Factor Productivity Nexus in Nepal

This study empirically investigates the impact of FDI on the TFP growth of firms in Nepal from 1990 to 2018, employing an econometric model based on the Cobb-Douglass production function and a theoretical Solow model of the TFP growth accounting method. The study used a time series database (1990–2018). As a result, the econometric and non-parametric TFP estimations provide mostly positive TFP growth of FDI firms in Nepal, except for a few cases influenced by political and security disturbances. Positive TFP growth in almost years indicates increased productivity of FDI firms at a lower than expected level, despite the fact that FDI firms are still constrained by problems such as massive inferior labor, no significant technological and financial transfer, and a poor business environment. Issues of continuity and stability between the two periods indicate the unpredictable situation of productivity. Therefore, FDI policy framework should focus on output and outcomes to invite FDI rather than FDI size, nature, and source.

Technology growth in the digital age: Evidence from China

Based on a broad definition of the digital economy, this study constructs a digital technology capital measurement framework and measures China's digital technology capital services from 2002 to 2018 to illustrate the growth of digital technology. In addition, the relationship between digital technology and economic growth is examined using the growth accounting method and econometric panel models from the perspective of the substitution and penetration effects of information and communication technologies. The measurement results show that China's digital technology capital services grew faster than non-digital ones from 2002 to 2018. In terms of the substitution effect, the contribution of traditional capital to economic growth is diminishing, whereas digital technology capital's contribution is expanding. Regarding the penetration effect, the contribution of digital technology capital to labor productivity is gradually overtaking that of traditional capital, with the impact varying by sector. These results may provide developing countries with a strategy to seek new development drivers and sustain economic growth in the post-pandemic era.

Sources of transport sector labor productivity performance in industrialized countries: Insights from a decomposition analysis

This study examines patterns and sources of growth in the transport sector's labor productivity across 13 industrialized countries over the period 2000–2015. Through decomposition analysis – specifically, the growth accounting method and industry origin analysis – the study makes three principal findings. First, total factor productivity growth plays a crucial but often underleveraged role in driving the sector's growth and catch-up on labor productivity. Second, digital transformation – especially investment in software and database assets – is a significant source of the sector's labor productivity growth and catch-up, while innovation-related capital has a complementary effect. Third, subsector-level labor productivity improvement is the major driver of the sector's overall labor productivity growth, while the growth contribution of labor reallocation among subsectors is insignificant. The article concludes with a discussion of policy insights and implications.

Mathematical Modelling of Qualitative System Development

Many scientific fields need to know how human systems develop. From an economic point of view, the main factors of system output change are changes in the quantity of inputs (extensive factors) and changes in efficiency (input quality and productivity, intensive factors). The growth accounting (GA) method is used for the calculation of the impact of both factors on GDP change. However, its interpretation is sometimes difficult, and GA does not cover all of the possible situations of system (country economy) development. This article uses mathematical tools to derive new indicators (dynamic intensity indicator and dynamic extensity indicator) that clearly count and express how the changes in intensive or extensive factors contribute to the output change in any system. The indicators come from the complex system development typology analyzed in the text. The typology covers all of the relationships among the inputs, their efficiency, and their output. The article shows the use of these indicators in macroeconomics when examining the intensity of GDP development in the World’s major economies during the period of 1961–2021 and in microeconomics while investigating the intensity of the development Apple in the period of 1999–2021. We further discuss how indicators reduce managerial risk and uncertainty and their pros and cons.

Demand-led growth decomposition: an empirical investigation of the Brazilian slowdown in the 2010s

Abstract The empirical investigation on countries' long-term growth usually relies on growth accounting methods, which are based on a supply-led approach, where factors accumulation are the main countries' growth constraints. This approach, however, ignores the importance of effective demand in explaining the long-term dynamics. Conversely, Keynesians stress the centrality of effective demand to explain why some countries present high growth rates for prolonged periods and others do not. They account for different views on the determinants of demand growth, such as exports dynamics, income distribution and public investment. The aim of the paper is twofold. Firstly, it extends the SDA method – a method that allows us to identify sources of changes in input–output matrices – to account for endogenous consumption and import-substitution impacts, and, secondly, it applies this method to understand the Brazilian slowdown in the 2010s. Based on a Miyazawa–Leontief framework, it is possible to identify the importance of each of the demand factors in explaining countries' growth, considering both the autonomous sources of demand and their potential to spread through the economy via their multiplier effects. The application of this extension to investigate the Brazilian slowdown in the 2010s shows the importance of natural resource exports, public investment and absorption of domestic demand in different sub-periods. Based on these findings, we discuss the possibility of Brazil to restore its growth potential through specific demand stimulus, such as infrastructure investments.

Economic development of Montenegro from 1918 to 1990: the impact of political status and economic development model

ABSTRACT This study aims to explore the impact of the different political statuses of Montenegro within Yugoslavia from 1918 to 1990 and the state-led development strategies in the process of intensive postwar industrialization on its economic development. This study investigates the possible causes of the lower level of development of Montenegro in relation to other parts of Yugoslavia. The research shows that, after gaining the status of an equal federal member in Yugoslavia after World War II, in combination with the state-led model of accelerated industrialization, it achieved the best economic results in its history. This emphasizes the positive effects of state-led development in regions with a weak capitalist tradition and underdeveloped political and market institutions. By applying the growth accounting method, we estimated the annual growth rates of TFP in Montenegro and Yugoslavia from 1952 to 1988. The results show lower TFP growth in Montenegro than in Yugoslavia because of the lower development of its determinants (education, infrastructure, market efficiency, innovation, and institutions).

An Investigation into the Channel of Public Expenditure to Boost Industrial Productivity in Pakistan

It is a fact that public expenditure has a strong association with industrial productivity. The industrial sector recorded slow growth of 5.43%, which adds 20.90% to the GDP of Pakistan (2017-2018). This study aims to find the effects of public expenditure on Total Factor Productivity (TFP) in the industrial sector of the country. The study constructed two different models. In the first model, the study used time series data from 1975 to 2018, and the growth of adjusted TFP was calculated by the growth accounting method. In the second model, the study collected data from 1977 to 2018 and checked the impact of government expenditure on the TFP growth in the industry. The unit root tests, Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) were employed. The findings of the study revealed that public expenditures on education were significant and positively related to TFP growth in industries. Public expenditure on health, agriculture, and inflation had a significant and positive association with TFP growth in the industries. Foreign direct investment had a negative but significant impact on TFP growth. The results of the present study suggest that industrial productivity can be increased by increasing the expenditure on education and health.

Measuring the Productivity of the Foods and Beverages Industries in Indonesia: What Factors Matter?

The foods and beverages industries have shown the largest share of output in the manufacturing sector of Indonesia for more than a decade. This study aims to investigate its performance indicators through the growth of total factor productivity (TFP) and its determinants, such as imported raw materials, exports, absorptive capacity, firm size, market concentration, and capital ownership. This study employed firm-level panel data from 2008–2015 and the Growth Accounting method of Solow residual in addition to the fixed effects model to estimate TFP growth and its determinants. The results show that the foods and beverages industries in Indonesia showed positive TFP growth from 2008–2015. Moreover, variables of absorptive capacity, firm size, and market concentration promote the TFP growth of firms. Meanwhile, import intensity discourages TFP growth. However, within a certain threshold, firms with import activities perform better than non-importer firms. However, imports and exports may entail transfer of technology and knowledge and will be the bridge between the firms and the advanced market. This study recommends that policy makers increase the managerial capabilities of firms through a more massive training program as well as provide incentives to workers in the form of rewards or relief of income tax, while also improve product competitiveness through more intensive programs on the Indonesian National Standard (SNI) and the Domestic Component Level (TKDN).

Total factor productivity growth in upper middle income Balkan countries from 2000-2017, total economy and sectoral approach: the growth accounting method

Total factor productivity growth in upper middle income Balkan countries from 2000-2017, total economy and sectoral approach: the growth accounting method

The impact of epidemics on agricultural production and forecast of COVID-19

PurposeThis article investigates the mechanism of the direct and indirect effects of epidemics on agricultural production and projects the impact of COVID-19 on agricultural output in China.Design/methodology/approachThis article first adopts a dynamic panel model and spatial Durbin model to estimate the direct and indirect effects, followed by a growth accounting method to identify the channels by which epidemics affect agriculture; finally, it projects the overall impact of COVID-19 on agriculture.FindingsThe incidence rate of epidemics in a province has a negative impact on that province's own agricultural productivity, but the increase in the input factors (land, fertilizer and machinery) can make up for the loss and thus lead to insignificant direct effects. However, this “input-offset-productivity” mechanism fails to radiate to the surrounding provinces and therefore leads to significant indirect/spillover effects. It is projected that COVID-19 will lower China's agricultural growth rate by 0.4%–2.0% in 2020 under different scenarios.Research limitations/implicationsIt is crucial to establish a timely disclosure and sharing system of epidemic information across provinces, improve the support and resilience of agricultural production in the short run and accelerate the process of agricultural modernization in the long run.Originality/valueConsidering the infectivity of epidemics, this article evaluates the mechanism of the direct and indirect effects by introducing a spatial dynamic model into the growth accounting framework. Moreover, besides the impact on input portfolio and productivity, this article also investigates whether epidemics reshape agricultural production processes due to panic effects and control measures.

Growth accounting and regressions: New approach and results

We seek for determinants of the sources of growth. Using a growth accounting method that accounts for time variations in factor shares, we run growth regressions for a panel of 101 countries between 1950 and 2015. Our methodology takes into account the specific features of the data (namely outliers, heterogeneity, and cross panel correlations) and overcomes most criticisms previously raised on growth regressions. The most important evidence reveals that government current expenditure decreases the factor shares and has no effect on total factor productivity (TFP). Trade affects the TFP and the Biased Technical Change (BTC) components, decreasing the factor shares. Moreover, human capital decreases TFP and increases the BTC contribution to growth. This unveils the channels through which determinants of growth act in influencing economic growth.

New Growth Accounting

This article opens the black box of total factor productivity by decomposing this “all‐in‐one” index into various input‐embedded and input‐free productivities in a new growth accounting framework. The new method identifies different channels through which growth drivers affect economic growth and finds the most effective way to boost the economy, which is unidentified in standard method. This new approach uses a varying coefficient stochastic frontier model, which integrates the standpoints of the endogenous growth theory and the induced innovation theory into a reduced‐form productivity analysis. The new growth accounting is then applied to study the impacts and contributions of R&D investments, international trade, and structural transformation to world agricultural growth during the period of 1962 to 2014. The empirical results provide new evidence to support the endogenous growth theory and the induced innovation theory, indicating the necessity of using the new growth accounting method.

Accounting for U.S. Post-War Economic Growth

We develope a growth accounting method using the whole neoclassical growth model. We obtain three primary findings from our analysis of the U.S. economy during 1954--2017. First, the efficiency wedges in the entire period accurately account for the evolution of U.S. productivity and labor share. Second, the labor wedge was the main force driving the recovery of output and worked hours per capita in the eighties and nineties as well as after the Great Recession. Finally, if factor shares adjust competitively, the main force driving the U.S. growth slowdown of both the seventies and the first decade of this century was the capital-efficiency wedge and the forces driving the U.S. Great Recession are not very different from the forces working in other OECD economies and those driving the 1982 Recession in the United States.

Macroeconomic determinants of total factor productivity and its trend in Ethiopia

Total factor productivity (TFP) as a source of economic growth, has been recognized in economic theory for a long period of time. In this research we tried to examine the effect of some macroeconomic factors, which include trade openness, inflation, government expenditure, credit extended and foreign direct investment, and natural disaster drought on total factor productivity and its trend in Ethiopia by using Time series data spanning from 1991 to 2018. The TFP was computed by using the growth accounting method from Cobb–Douglas production function. ARDL was used for estimation of the short and long run econometric model. Accordingly, the trend analysis shows the growth in TFP has been fluctuating over the study period. The result from ARDL indicated that; in long run foreign direct investment, government expenditure and drought negatively and significantly affect TFP. Credit extended is found to affect TFP positively and significantly, while inflation and trade openness are insignificant. Therefore, policies such as; subsidizing domestic firms, effective government spending and making the agriculture sector drought resistant need to be stimulated.

Agricultural Labour Productivity and Its Determinants in India

This study attempts to modestly undertake an empirical analysis to understand the issues of agricultural labour productivity measured in different dimensions and their determinants and, accordingly, their implications for agricultural growth. Labour productivity is measured as the ratio of total agricultural output to total labour input which can be located in the broader framework of growth accounting method put forth by Solow. The labour productivity index is estimated across four different time-series dimensions. All the estimated productivity indices except labour productivity index based on seasonal and cyclical components show an increasing trend in labour productivity in agriculture though there are very negligible and marginal variations between various estimates across various dimensions of time-series measurements. It is argued here that probably the factors determining cyclical variations in the agricultural output could be different from what they appear to be for the productivity movements in trend. The estimated model clearly exemplifies that rural literacy, electricity consumption, gross capital formation and weather dummy are the most important determinants of labour productivity in the Indian agriculture during the sample period under study.

Structure and Performance of Capital Goods Industry in India during the Pre-reform and Post-reform Period

Capital goods are considered as a backbone of the manufacturing industry since independence. India has adopted various policies to improve the capital goods industries. Have capital goods industries grown over the years? Whether its share has improved within the manufacturing amongst use-based industries? Do the partial and total productivities of capital goods industries improve in the postreform period as compared to the pre-reform period? These were the main issues taken up in the present study. Thus capital goods industries were classified into four sub-sectors-electronics industries, electrical machinery industries, non-electrical machinery industries and transport equipment industries consisting of 22 industries. Using industry-level ASI data, a fresh insight has been presented over the capital goods sector for 35 years long-run time period (from period 1980–81 to 2013–14) which is further divided into the pre-reform and post-reform period. For the detailed analysis of structural changes, shares of the capital goods sector are estimated for use-based classification of manufacturing industries. Further, the paper also provides detailed insights into performance through shares, trend growth rates and partial productivities at the aggregate and disaggregates level. The estimated indicated a decline in trend growth at the aggregate level of capital goods sector in terms of gross value added in all sub-sectors of the capital goods sector. Using the Translog index of growth accounting method, some industries showed a slight increase in total factor productivity growth in the post-reform period. However, at the aggregate level, Total Factor Productivity growth of capital goods sector declined in the post-reform period as compared to the pre-reform period.

An Analysis on Influence Factor on TFP Growth of Korean ICT Industry

본 연구는 한국 ICT산업의 총요소생산성을 추정한 다음 이에 영향을 미치는 직접적 요인을 도출하고 정책적 시사점을 제공하는 데 목적이 있다. 분석방법 및 차별점은 지금까지 거의 없던 ICT산업 총요소생산성 영향 요인에 대한 분석이 이루어졌다는 점이다. 또한 성장회계방식, 초월대수함수 방식, 솔로우 잔차 방식 등의 다양한 추정방법을 채택하고 패널VAR모형을 이용하여 충격반응함수와 예측오차 분산분해 등 동태적 영향 관계를 분석하고 있다는 점이다. 분석결과는 다음과 같다. ICT산업의 평균 성장률은 8.62%이며 성장률 증가에 대한 기여는 자본기여도, 총요소생산성증가율, 노동기여도의 순서이다. 총요소생산성증가율에 대한 영향 요인과 관련하여 무역개방도 비율은 총요소생산성 증가율에 부(-)의 영향을 미쳤다. 이는 수출의 기술전파 및 학습효과, 규모의 경제효과 등과 수입의 경쟁촉진 효과 등이 총요소생산성 증가율에 부정적으로 작용하였음을 의미한다. 인적자본축적 관련(HC) 비율은 총요소생산성 비율에 대하여 정(+)의 영향을 미쳤다. 동태적 분석에서는 총요소생산성에 대한 영향과 기여는 대외적인 무역개방도의 영향이 내부적인 인적자본축적관련 요인보다도 더 큰 것으로 나타났다. 한국의 ICT산업의 성장률 증가는 내부적 요인보다는 무역개방도와 같은 대외적 요인에 의하여 영향을 더 큰 영향을 받았음을 의미한다. 이러한 결과는 ICT산업의 지속적인 성장 유지를 위해서는 대외경쟁력 제고가 중요하지만 역설적으로는 인적자본축적 등과 같은 내부적 요인의 강화를 통한 경쟁력 확보가 필요함을 시사한다.The purpose of this study is to derive the total factor productivity of Korean ICT industry and to estimate direct factors affecting it, and to provide policy implications. This paper focuses on the analysis of panel data and impulse response function and forecast error variance decomposition by using various estimation methods such as growth accounting method, transcendental algebra function method, solow residual method, and panel VAR model. The results of the analysis are as follows. The average growth rate of the ICT industry is 8.62%, and the contribution to the growth rate is the order of capital contribution, total factor productivity growth, and labor contribution. In terms of the factors affecting the growth rate of TFP, the ratio of trade openness has a negative effect on the rate of TFP growth. This implies that the effects of exports on technology diffusion and learning, economies of scale, and the stimulation of import competition have negatively affected the growth rate of TFP. The ratio of human capital accumulation (HC) has a positive effect on the ratio of total factor productivity. In the dynamic analysis, the effect and contribution to TFP was found to be greater for the effects of external trade openness than for internal capital accumulation. It means that the increase in the growth rate of ICT industry in Korea is more influenced by external factor such as trade opening rather than internal factor. These results suggest that it is necessary to enhance competitiveness by strengthening internal factors such as human capital accumulation in order to maintain competitiveness of ICT industry.

How to Express and to Measure Whether an Economic System Develops Intensively

This article presents comprehensive typology of all possible relationships among inputs of an economic system, their productivity, and output. Each situation is given an exact name explaining how intensive and extensive factors contributes to the system development. The exact contributions of the factors can be counted by so-called dynamic intensity and extensity parameters. The article describes logic of the parameters, discusses their advantages and problems and assigns their values to the presented nomenclature of the developments. The parameters are further compared with growth accounting methods and their use is demonstrated on the development of macroeconomic system on the national economy level when it is counted how intensive and extensive parameters contribute to the Czech and German GDP development in the period 1991–2017. The analysis confirms that the parameters can be used as an alternative methods to growth accounting and that managers of any economic system should pay attention whether a system achieves positive value of the dynamic intensive parameters in long run.