TFP Growth Research Articles

Precaution versus mercantilism: Reserve accumulation, capital controls, and the real exchange rate

We document a new international stylized fact on the relationship between external wealth, capital controls, and the real exchange rate. We first re-confirm that the real exchange rate appreciates when external asset holdings increase, all else equal, a central mechanism in international economics. However, we find that increases in publicly held external assets (reserves) are associated with depreciation, especially if combined with high capital controls. Reserve accumulation is also associated with a larger trade surplus, and higher GDP and TFP growth, in countries with high capital controls. The results hold using an instrumental variable for reserves based on commodity export surrender requirements. A simple rationale is presented to account for the new fact: combined reserves and capital controls can affect trade balances via undervaluation (mercantilist motive), while reserve increases without controls can insure against crises (precautionary motive) independently of real exchange rates.

Assessing impact of the COVID-19 pandemic on China’s TFP growth: Evidence from region-level data in 2020

This paper examines the first wave spread of COVID-19 in China and its impact on TFP growth for 2020, and assess the role of anti-epidemic lockdown policy in suppressing the pandemic. Methodologically, we systematically quantify the disparity in the pandemic’s productivity impact and the role of lockdown policies across regions, by combining the prefecture-level TFP growth for 422 regions (including 276 municipal cites and 146 county regions) with the daily statistics on the pandemic. Our results show that the negative impact of the COVID-19 pandemic on TFP growth are more likely to occur in municipal cities, compared to rural areas. Moreover, the anti-epidemic quarantine policy succeeded to bring the COVID-19 pandemic down in China, but it may generate additional costs through dampening TFP growth if overused. Given the regions either with a relative higher resilience level or in the remote rural areas suffered more from the strict regulation. A more flexible policy is required to be designed so as to mitigate the ongoing COVID-19 impacts in future. These findings provide useful insights for China, as well as other Asian developing countries, to cope with its continuing episodes.

Firm dynamics and SOE transformation during China’s Economic Reform

We study the reform of China’s state-owned enterprises (SOE) with a focus on the corporatization of SOEs. We first document the empirical patterns of the “grasp the large and let go of the small” policy. To quantify the implications of the reform for aggregate output and TFP, we build a three-sector firm dynamics model featuring financial frictions and endogenous firm-type choices. Our calibrated model shows that the SOE reform can increase long-run TFP by encouraging the exit of the least efficient firms in the state sector, but the magnitude of TFP growth also depends on the efficiency in capital reallocation. In the short run, corporatization increases aggregate output and TFP because it allows the most productive SOEs to have a higher borrowing capacity than they would under privatization.

The Measuring the Efficiency and Productivity of Regional Water Utility Company (PDAM) in Indonesia from 2012 to 2016

Sufficiently clean water is accessible in Indonesia, where municipally-owned cooperation (BUMD) handles the management of the PDAM. It allows local governments authority over water management in their administrative districts. This organization is responsible for maintaining the region's water supply while earning income from water business operations. However, this effort is not deemed effective since having many PDAMs results in inadequate water quality, low water distribution, and even financial losses. However, the assumption lacks factual evidence as they are not assessed alongside the government audit. To analyze the inefficiencies of water supply services and the productivity growth of PDAMs from 2012 to 2016, this research proposes to use a non-parametric technique, namely data envelopment analysis (DEA) and Malmquist Index Calculation, respectively. The research findings reveal significant inefficiencies among PDAM from various regions in Indonesia. It was found that PDAMs outside Java performed better than those in Java; thus, PDAMs need policy intervention. The operations of larger municipal PDAMs should be restructured to increase productivity. There was no TFP growth (TFPCH) in PDAMs, evidenced by the reduction in pure technical (TECH) and scale efficiency change (SECH). In addition, the positive technological adjustment (TECCH) did not significantly improve efficiency. Regarding the increase in the number of PDAMs resulting from technological improvement, productivity was primarily due to technological advancement.

Foreign direct investment, efficiency, and total factor productivity: Does technology intensity classification matter?

Purpose ― We examine whether the foreign direct investment (FDI) in promoting technical efficiency is controlled by the sector classifications based on the technology intensity (High Technology, Medium-High Technology, Medium-Low Technology, and Low Technology). Methods ― We use the Indonesian firm-level dataset of the large and medium manufacturing survey from 2007 to 2015 and employ the time-varying stochastic production frontier. Findings ― We reveal that FDI, technology intensity and absorptive Capacity significantly affect firms' production and efficiency. We also found that the Indonesian manufacturing industry from 2007 to 2015 experienced positive Total Factor Productivity growth, where High-Technology sectors experienced the largest magnitude among others. Meanwhile, technological progress stemming from FDI is enjoyed more by Low Technology sectors. Meaning to say, technology intensity classification does not matter to technological progress. Implication ― The host country's government should focus on industries with high technical capabilities to accelerate FDI gains for the firms. Simultaneously, human capital improvement also needs to be intensified, for instance, through training or human development, so that firms with lower technical capability can catch up and, consequently, receive similar benefits from FDI activities. Originality ― Our study accommodates the research gap by including the FDI effect in both productivity and efficiency in a single equation. Many studies merely categorize technology intensity following the stochastic production frontier estimation to obtain technical efficiency or TFP growth. In this sense, those studies did not control the impact of the technology-specific effect.

The impact of the digital economy on China’s economic growth and productivity performance

ABSTRACT China’s digital economy experienced a rapid development over the past two decades. How can we systematically measure the contribution of the digital economy to China’s economic growth? Has the digital economy contributed to an increase in China’s total factor productivity? This paper analyzes the impact of the information and communication technology (ICT) development on China’s economic growth since its WTO accession in an aggregate production possibility frontier framework. Our empirical analysis shows that the digital economy has been the most significant contributor to China’s economic growth and productivity improvements over the past two decades. Nevertheless, due to severe capital misallocation across industries and persistent inefficient performance of some non-ICT industries, industries with high investment growth have not been matched by industries with high TFP growth.

Pigouvian Cycles

Current and expected unemployment rates contain information that is highly useful to estimate the effect of news about TFP and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by noise about TFP. These results emerge because of the low-frequency negative relationship between unemployment and TFP growth. The model predicts that the start (end ) of most US recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met. (JEL E21, E22, E23, E24, E32, E43, E52)

Does firm size matter? Decomposing Korean firms’ productivity growth based on a stochastic frontier approach and its policy implications

ABSTRACT Despite the significance of transition in the growth stages, there is a lack of evidence on the different characteristics of firm size in terms of the sources of TFP growth. This study applies a stochastic frontier analysis to Korean firms to decompose the sources of total factor productivity growth into technical progress, technical efficiency changes, scale changes and allocative efficiency changes. Specifically, this study analyses the determinants of TFP growth by firm size (i.e. small-, mid- and large-sized firms) and explores firm-size-specific factors that influence their productivity growth rates. Our results suggest that contributions of four components to TFP growth by firm-size classes show somewhat different patterns. These results imply that each class has different sets of challenges in terms of improving productivity growth potentials. The main findings are expected to lay foundations for designing elaborate firm-size-dependent policies to spur the evolutionary process of a firm’s capacity building.

Environmental investment is a powerful "support" for the progressive and sustainable growth of the post-pandemic economy of Russia

The objective need for environmental investment to overcome the reproduction of anti-sustainable environmental trends in the modern Russian economy and its post-pandemic recovery is substantiated. Environmental investments that meet the criteria of the global ESG agenda are positioned as responsible in their essence and transformative in their functional role. Original scientific judgments are presented on the impact of such investments on the dynamics and intensity of "green" innovations (new technologies, production processes, supply chains capable of solving issues of waste processing and industrial reproduction of raw materials from waste resources, as well as the use of alternative energy sources, etc.), which are able to generate long-term and sustainable growth of aggregate factor productivity (TFP) and ensure the radical transformations of the economic system associated with the formation of a "green" circular economy. Regressive models (growth curves) have been constructed for the current domestic economy, taking into account the volume of environmental investment, confirming the hypothesis of the "weakness" of this process in the Russian Federation, including due to the lack of significant changes in the state environmental policy. The minimum necessary economic tools of the state policy in the field of stimulating environmental investment in Russia have been formed in order to post-pandemic recovery of its economy and ensure long-term sustainable growth of TFP. The conducted research makes a certain contribution to the development of the theory of endogenous economic growth by taking into account the impact of environmental investment, which is initially focused on the effective use of natural capital, on the maximum involvement of waste resources in economic turnover, the replacement of traditional production technologies with environmentally friendly or low-carbon, the improvement of ecosystems, the production potential of the economy, the quality of the environment and social changes.

Potential growth in Turkey: Sources and trends

This paper estimates potential growth in Turkey using a production function estimation approach. Our approach aims to measure the inputs of production in the most detailed fashion that is possible and empirically addresses concepts of sustainable potential growth for Turkey. While developing measures of the sources of potential growth, we provide a thorough discussion of the estimated trends in labor force participation, capital growth by asset type, and total factor productivity since the mid-2000s. Our results suggest that the key driver of potential growth has increasingly been capital accumulation. The declining trend in the positive TFP growth stands out as the key area of improvement for potential growth.

Is Income Convergence Possible with a Diminishing Industry’s Output? Development Gap and Structural Changes in Montenegro Since the World War II

Intensive industrialisation in the second half of XX century was the main driving force of the most dynamic economic growth in the Montenegrin economic history. Since the transition from self-management socialism to a market-oriented economy, the Montenegrin economy has become more service-oriented. Empirical studies show that TFP growth is higher in industry and knowledge-intensive services than in other services, leading to service-oriented economies growing at a lower rate. This study confirms the same for the Montenegrin economy. If industry and knowledge-intensive services do not expand, will Montenegro diverge instead of converging to developed economies? The results from this study contribute to convergence analysis and serve as an example of the growth prospects of developing countries with fewer industry and knowledge services-oriented economies.

Aggregate Implications of Changing Sectoral Trends

We find disparate trend variations in TFP and labor growth across major U.S. production sectors and study their implications for the post-war secular decline in GDP growth. We describe how capital accumulation and the network structure of U.S. production interact to amplify the effects of sectoral trend growth rates in TFP and labor on trend GDP growth. We derive expressions that conveniently summarize this long-run amplification effect by way of sectoral multipliers. These multipliers are quantitatively large and for some sectors exceed three times their value added shares. We estimate that sector-specific factors have historically accounted for approximately 3/4 of long-run changes in GDP growth, leaving common or aggregate factors to explain only 1/4 of those changes. Trend GDP growth fell by nearly 3 percentage points over the post-war period with the Construction sector alone contributing roughly 1 percentage point of that decline between 1950 and 1980. Idiosyncratic changes to trend growth in the Durable Goods sector then contributed an almost 2 percentage point decline in trend GDP growth between 2000 and 2018. Remarkably, no sector has contributed any steady significant increase to the trend growth rate of GDP in the past 70 years.

An Empirical Study on the Growth of Agricultural Green Total Factor Productivity in the Huanghuai River Economic Zone by Big Data Computing

Facing the new form and situation of the Huaihe Economic Zone, it is of great significance to analyze the sources of growth and the intrinsic mechanism of the green total factor productivity of its economic-ecological system, to grasp the spatial and temporal characteristics of green total factor productivity, and to study the influence of each factor on green total factor productivity to achieve sustainable economic development in the Huaihe Economic Zone. Based on the clarification of economic growth theory, green economy theory, carbon cycle theory, and green total factor productivity theory, this paper identifies and discusses the limitation that the existing research literature often ignores the endogenous role of carbon sinks when measuring green total factor productivity. Then, the green total factor productivity of Huaihe Economic Zone based on carbon cycle from 2004 to 2017 is measured using the superefficient nonradial SBM model. Combined with the GML productivity index, it is decomposed into technical progress and technical efficiency and analyzed in comparison with the green total factor productivity without considering ecological purification capacity (carbon sink) from the perspective of time and space. Finally, the spatial Durbin model is used to analyze the effects of seven variables, including the level of economic development, environmental regulation, R&D level, and openness to the outside world, on green total factor productivity in the Huaihe Economic Zone, and to analyze the direct and indirect effects of each variable on green total factor productivity. TFP based on expected output carbon sink and GDP overall outperforms TFP based on expected output GDP only, mainly because the growth of technical efficiency is underestimated when carbon sink is not considered. Technical efficiency and technological progress are equally important for the growth of TFP in an eco-economic perspective. It is of great practical significance for both the comprehensive understanding of the green total factor productivity level and the improvement path of the ecosystem and the coordinated and sustainable development of the Huaihe Economic Zone.

Measurement of Total Factor Productivity and its Determinants in Indian Pharmaceutical Industry: An Application of Data Envelopment Analysis

The present paper evaluates total factor productivity growth and its determinants for the period of 2009-10 to 2019-20. The paper employs data envelopment analysis based Malmquist Index for calculating TFP growth and panel data models for estimating its determinants. The data were collected from CMIE- PROWESS for the firms that are having sales more than Rs. 100 Crores based on the year 2009-10. The total of 96 firms were used for the analysis and are in terms of rupees in Crores. Total sales, cost of raw materials, salaries and wages, capital cost, and cost of Advertising and marketing are used for calculating TFP. Company age, value of shares, profit, R&D expenditure, value of import and value of exports are used for determinants. It was found that the year 2013-14 recorded positive TFP growth that was mainly due to technological change. It is evident from the result that negative TFP growth is reported in most of the firms during the study period. The main reason for lowest TFP growth is due to technological change in Indian Pharmaceutical firms. Age and export were significant and positive, whereas R&D was a significant and negative relationship with TFP. Rests of the determinants were insignificant with TFP.

From Imitation to Innovation: Where Is All That Chinese R&D Going?

We construct an endogenous growth model with random interactions where firms are subject to distortions. The TFP distribution evolves endogenously as firms seek to upgrade their technology over time either by innovating or by imitating other firms. We use the model to quantify the effects of misallocation on TFP growth in emerging economies. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007–2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and perform counterfactuals to study the effect of alternative policies. R&D misallocation has a large effect on TFP growth.

Ideas, Idea Processing, and TFP Growth in the US: 1899 to 2019

Ideas, Idea Processing, and TFP Growth in the US: 1899 to 2019

Does Stricter Command‐and‐Control Environmental Regulation Promote Total Factor Productivity? Evidence from China’s Industrial Enterprises

China is implementing increasing stringent command‐and‐control environmental regulations to achieve high‐quality development. However, we have limited understanding about whether such policies are effective. This study selects the policy of China’s National Environmental Protection “Eleventh Five‐Year Plan” as a quasi‐natural experiment and uses the difference‐in‐differences (DID) method to analyze the effect of stricter command‐controlled environmental regulations on total factor productivity from the enterprise level. Our results indicate that stricter command‐and‐control environmental regulation promotes TFP of enterprises throughout the country. This effect is even greater in long‐established, large‐scale, or low capital density enterprises. In addition, stricter command‐and‐control environmental regulation has a greater positive effect on the TFP of companies in industries with high pollution intensity and fierce competition. Furthermore, government transformation and market green preference will magnify the positive effect of stricter command‐and‐control environmental regulation on corporate TFP. Moreover, stricter command‐and‐control environmental regulation promotes the growth of enterprise TFP mainly by improving the efficiency of resource allocation within and between enterprises, rather than stimulating innovation. Local governments should refine pollution control policies, optimize the external environment, and enhance the innovation power of enterprises.

Aging and the Real Interest Rate in Japan a Labor Market Channel

This paper explores a causal link between aging of the labor force and declining trends in the real interest rate in Japan. We develop a search/matching model that features heterogeneous workers with respect to their ages and firm-specific skills. Using the model, we examine the long-run implications of the sharp drop in labor force entry in the 1970s. We show that the changes in the demographic structure induce significant low-frequency movements in per capita consumption growth and the real interest rate. The model suggests that aging of the labor force accounts for 40 percent or more of the declines in the real interest rate observed between the 1980s and 2000s in Japan. We also examine the impacts of other long-term developments such as a slowdown of TFP growth and higher shares of female and non-regular workers.

Performance of commercial banks in India: a non-parametric Malmquist index-based DEA approach

The present study evaluates productivity and efficiency of Indian commercial banks in terms of TFP growth, technological change and technical efficiency performances. Efficiency have been computed using data envelopment analysis-based Malmquist productivity index for the balanced panel data set of 70 commercial banks operating in India from 2005-2017. The analysis has been carried out in two stages, all banks as a single group and three bank categories individually. The results of all banks analysis revealed that, 44% banks have recorded positive change in TFPG and category wise analysis revealed that, technological change is found to be the primary reason for positive change in TFPG of 68% private banks. Also, 15% public sector banks and 32% foreign banks recorded positive TFPG. The study concludes that there is enough scope for improvement in the performance of Indian public sector banks in comparison of its counterparts in terms of productivity and efficiency.

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).