Total Factor Productivity Growth Rate Research Articles

GROWTH AND BUSINESS CYCLES FOR THE SWEDISH ECONOMY

This paper consists of two parts. In the first part we carry out a traditional growth accounting exercise for the private business sectors of the Swedish economy. A search for structural breaks during the sample period, using Chow tests with a dynamic specification of Total Factor Productivity (TFP) growth rates, and Granger causality tests are carried out for the nine sectors of the Swedish economy. We combine the growth rates of value added and hours worked and calculate labor productivity for the period 1960–1999. In order to facilitate comparisons we present Swedish and international results. To a large extent we are able to replicate the Swedish results. The slow down in TFP growth rates in the 1970s can be identified with the first and the second oil shocks in 1973 and 1979. The other structural breaks occurred in the early 1990s and could possibly be identified with the tax reform of the century in 1991 and the severest of recessions that took place in the Swedish economy. The Granger causality tests indicate that growth rates in investment Granger causes growth rates in TFP for the agriculture and the financial institutions, real estate and other business, while TFP growth rates in mining and quarrying, and manufacturing granger causes growth rates in investment.In the second part of the paper, we Hodrick–Prescott filter the data, and calculate cross correlations of detrended output, hours, investment and TFP at different leads and lags. The results indicate that investment leads TFP for agriculture, hunting, forestry and fishing, electricity gas and water, and for education, health and social work and community social and personal services. Investment lags TFP for the mining and quarrying, manufacturing industry, and for financial institutions and insurance companies, real estate renting and business service companies. Hours worked lead the TFP cycle for mining and quarring, manufacturing and wholesale/retail trade. The decomposition of TFP into trend and cyclical component dates the business cycle. Standard deviations on the cyclical components of value added, hours worked, TFP, and gross investment reveals that the most volatile variables are gross investment, followed by TFP, GDP and hours worked.The contribution of this part of the paper lies in the disaggregated data set containing annual information for the period 1963–1999, and in the application of several analytical tools to the growth accounting exercise results. In addition such an extensive growth accounting exercise has not been carried out for the private business sectors of the Swedish economy.

The New Economy in Europe, 1992-2001

Despite the fast catching-up in ICT diffusion experienced by most EU countries in the last few years, information technologies have so far delivered little productivity gains in Europe. In the second half of the past decade, growth contributions from ICT capital rose in six EU countries only (the UK, Denmark, Finland, Sweden, Ireland and Greece). Quite unlike the United States, this has not generally been associated to higher labour or total factor productivity growth rates, the only exceptions being Ireland and Greece. Particularly worrisome, the large countries in continental Europe (Germany, France, Italy and Spain) showed stagnating or mildly declining growth contributions from ICT capital, together with definite declines in TFP growth compared to the first half of the 1990s. It looks like that the celebrated ‘Solow paradox’ on the lack of correlation between ICT investment and productivity growth has fled the US to migrate to Europe.

Scale economies, technical change and productivity growth in Japanese local telecommunications services

This paper aims to examine the cost structure of local telecommunications services in Japan to provide measurements of productivity growth and a decomposition of this growth. We estimate a variable cost function using panel data on eleven regional telecommunications sectors of NTT for the 1992–1997 period. Total factor productivity (TFP) is measured on the basis of the estimated parameters, and the TFP growth rate is then decomposed into three sources: scale economies, technical change and capital adjustment. Our results reveal that the contributions of technical change to productivity growth are greater than those of scale economies and capital adjustment.

The New Economy in Europe (1992-2001)

Despite the fast catching-up in ICT diffusion experienced by most EU countries in the last few years, information technologies have so far delivered little productivity gains in Europe. In the second half of the past decade, the growth contributions from ICT capital rose in six EU countries only (the UK, Denmark, Finland, Sweden, Ireland and Greece). Quite unlike the United States, this has not generally been associated to higher labour or total factor productivity growth rates, the only exceptions being Ireland and Greece. Particularly worrisome, the large countries in Continental Europe (Germany, France, Italy and Spain) showed stagnating or mildly declining growth contributions from ICT capital, together with definite declines in TFP growth compared to the first half of the 1990s. It looks like that the celebrated Solow paradox on the lack of correlation between ICT investment and productivity growth has fled the US to migrate to Europe.

Openness and total factor productivity in Swedish manufacturing, 1980–1995

Openness and Total Factor Productivity in Swedish Manufacturing, 1980–1995. — This paper studies the effect of openness on total factor productivity (TFP) growth. Using industry-level data for Swedish manufacturing from 1980 to 1995, the paper shows that integrated industries tend to be more engaged in R&D and have more entry and exit activity than other industries. The results show that domestic R&D intensity does not contribute to the TFP growth rate. Instead, openness to international markets, which helps facilitate technology spillovers, is an important factor. There is also some evidence that producers exiting the market are less productive, implying that such exits will increase the average productivity of the industry.

Biased Technical Change, Growth Accounting, and the Conundrum of the East Asian Miracle

The standard neoclassical growth accounting approach suggests that much, if not all, of the fast growth rates of the East Asian Tigers, was input driven. R. R. Nelson and H. Pack (Econ. J.109, 457:416–436, July 1999) have pointed out that these estimates may be subject to substantial errors caused by the presence of biased technical change and an elasticity of substitution that is less than 1. This paper proposes a method for implementing empirically their arguments. We find that, while indeed the total factor productivity (TFP) growth rates of these countries increase with the adoption of the modified growth accounting methodology, so also do the TFP growth rates of a group of developed countries. Thus, the standard conclusions about the role of technical progress in the region do not change substantially in relative terms. J. Comp. Econ., September 2001, 29(3), pp. 542–565. Georgia Institute of Technology, Atlanta, Georgia 30332-0610; Downing College and University of Cambridge, Cambridge, United Kingdom. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: O47, O53.

APEC and the Asian Economic Crisis: Early Signals from Productivity Trends

This paper provides empirical estimates of total factor productivity (TFP) trends in a sample of 17 APEC countries over the period 1975 to 1996. TFP growth is an important measure of an economy's performance and if measured correctly it can provide valuable guidance on issues related to the assessment of sustainable growth trends. We use the Malmquist index to measure TFP growth and decompose it into an efficiency change and a technical change component. This decomposition provides extra insight on assessing sustainable growth trends. The measurement technique itself is regarded as a significant improvement over previous conventional measures of TFP growth. The results are very interesting. Japan, Thailand and primarily Indonesia and Malaysia are identified as countries exhibiting on average negative TFP growth rates in the 1975‐1990 period. In all these countries as well as in South Korea and Taiwan the main cause of low TFP growth is a poor (negative) efficiency record. The average TFP growth rate for Japan and Malaysia is positive in the 1975‐1996 period but the efficiency change component remains negative. In all these countries the main contributor to labour productivity growth is capital accumulation. Unlike previous studies we find no evidence of a poor TFP growth performance for Singapore. Furthermore, we estimate that most of Singapore's labour productivity growth is driven by efficiency change. Estimates of rates of convergence towards the frontier economy that is estimated (not assumed as in other studies) to be the US, are also reported.

Structural Transformation and Economic Growth in Hong Kong: Another Look at Young's Hong Kong Thesis

Hong Kong registered high total factor productivity (TFP) growth until the 1980's. Its output growth since the mid-1980's has been driven by the cross-regional division of labor in which Hong Kong relocated manufacturing to mainland China and provided support and entrepôt trade services mainly in the form of service exports. However, TFP growth rate has been low in the booming services sector and high in the declining manufacturing sector, leading to a significant slowdown in overall TFP growth during the 1990's. Because of the deceleration in the growth rate of service exports since the mid-1990's and the greatly reduced size of the manufacturing sector, Hong Kong's potential output growth rate appears to have dropped significantly. J. Comp. Econ., June 2001, 29(1), pp. 366–382. Lingnan University, Tuen Mun, Hong Kong. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: O11, O47, O53.

Transition Dynamics in Vintage Capital Models: Explaining the Postwar Catch-Up of Germany and Japan

We consider a neoclassical interpretation of Germany and Japan's rapid postwar growth that relies on a catch-up mechanism through capital accumulation where technology is embodied in new capital goods. Using a putty-clay model of production and investment, we are able to capture many of the key empirical properties of Germany and Japan's postwar transitions, including persistently high but declining rates of labor and total-factor productivity growth, a U-shaped response of the capital-output ratio, rising rates of investment and employment, and moderate rates of return to capital.

Fluctuations in productivity growth rates and input utilization in U.S. manufacturing

Recent work suggests that the utilization rate of inputs (that is, the intensity with which inputs are used) varies over time and partly explains procyclical productivity. To confirm this, the panel data of the “NBER Manufacturing Productivity Database” (450 4-digit industries from 1958 to 1991) [Bartelsman and Gray, 1994] were analyzed to determine the year-by-year fluctuations in total factor productivity growth rates and the utilization rates of nonmaterial inputs. The utilization rate was found to be procyclical. When the gross domestic product (GDP) growth rate is 1 percentage point above normal, the utilization rate increases 2.5 percent. After this correction, productivity growth rates are still found to be procyclical, though its correlation with GDP growth is half that of the uncorrected Solow residual. That is, demand shocks can explain half of the procyclicality of productivity growth rates, but real business cycles still cannot be ruled out. Lastly, the results are compared with the Federal Reserve's capacity utilization statistics. It is shown that the latter actually measures a combination of capacity utilization and productivity shifts and, hence, overstates changes in capacity utilization.

Cyclical behaviour of productivity growth and price-cost margins: asymmetry and market power effects

A cross-sectional analysis was performed on the NBER Manufacturing Productivity database (450 four-digit industries) to investigate the behaviour of total factor productivity growth rates (PROD) and price-marginal cost ratios (PMC) in US manufacturing industries. This analysis allows for asymmetric behaviour and determines the effects of imperfect competition on cyclicality. Results indicate that PROD is procyclical, more so in contractions, and that market power is associated with an even greater increase in PROD during expansions; this suggests that variable input utilization (e.g. labour hoarding) is responsible for productivity growth fluctuations, and that firms in less competitive industries have more slack and can thus use inputs more intensively during booms. PMC decreases in both expansions and contractions, and the contractionary decrease is smaller in monopolistic industries; this can be attributed to capacity constraints in expansions and price cutting in contractions, with monopolistic industries less likely to engage in price competition.

Total factor productivity measures for Telstra

Using the Divisia indexation procedure to construct output and input indices for Telstra, this study estimated total factor productivity (TFP) growth rates for the period, 1980–1997. The study reveals that Telstra's TFP growth rates were significantly higher in the post-reform period compared to the pre-reform period. The study further reveals that the terms of trade for Telstra, defined as the ratio of output prices received and input prices paid by Telstra, has declined more sharply in recent years. This reflects Telstra's endeavour, under the competitive pressure, to share productivity gains with consumers.

Technical Change, Markup, Divestiture, and Productivity Growth in the U.S. Telecommunications Industry

This paper examines the sources of productivity growth for the, U.S. telecommunications industry from 1935 to 1987. These years encompass both the pre-and post-AT&T divestiture periods. We formulate a structural model that accounts for both changes in the cost and the demand side of the industry. We measure the contributions of aggregate demand, information intensity of the economy, price-cost margins, relative factor prices, direct and indirect effects of technological progress, and R&D investment on total-factor productivity (TFP) growth rate. We show that TFP growth rate as conventionally measured is a seriously biased measure of rate of technical change in this industry.

Total Factor Productivity Growth in Singapore: A Survey

Since the early 1990s, discussions on total factor productivity (TFP) have become increasingly important for Singapore, and there has been substantial amounts of empirical work done in this area using both cross-country and inter-temporal analysis. This article reviews the conceptual and empirical aspects of some of the TFP growth studies on Singapore and provides suggestions for future research. Introduction Total factor productivity serves as an important measure of the productive performance of an economy for the following reasons. First, unlike the partial productive measure, it considers the contribution of more than one input to output. Second, it is important to the growth process in the long run, as there are constraints imposed by population growth, together with diminishing returns that set in as capital intensity is increased. One way to secure economic growth beyond these limits is to secure ongoing increases in TFP. This is a very relevant issue for Singapore, which the OECD has upgraded to the status of an advanced newly developing country. Although Singapore has enjoyed impressive levels of economic growth, in terms of sustainable long-term growth given by TFP, it was Young (1992) who first argued that Singapore was nowhere near its twin city, Hong Kong. This was then emphasized by Krugman (1994) who singled out Singapore as the only newly-industrialized economy (NIE) which experienced no TFP growth. But Lim (1986, p. 5) once commented that, if a country can raise its standard of living so spectacularly with a very low TFP growth, does it then matter whether TFP growth is low?' Peebles and Wilson (1996, p. 205) as a reply to Lim, argued that an important point is missed in this comment which only looks at the benefits resulting from high growth and ignores the cost of achieving such growth. This means that TFP analysis in Singapore is not to be taken lightly. It was noted that most developed countries at the same development stage as Singapore were having TFP growth rates between 2 per cent and 4 per cent while Singapore registered an insignificant 0.4 per cent between 1980 and 1992. The target is now set to reach at least 2 per cent in order to sustain a (labour) productivity growth of 4 per cent and a GDP growth of 7 per cent.2 The importance of TFP in Singapore is further reflected in the numerous studies undertaken to examine the issue. Review of TFP Studies Table 1 provides a summary of various studies' estimates of TFP growth for Singapore's aggregate economy, manufacturing (Manu) and services (Serv). Most of the studies above show that TFP growth in Singapore has been insignificant, particularly in comparison with the NIEs and other countries. After the pioneering work of Tsao (1982) on Singapore, various studies have reexamined this issue. While Wong and Tok (1994) and Rao and Lee (1995) showed that TFP growth increased in the latter half of the 1980s, the National Productivity Board (1994) and Sarel (1997) showed improvements in TFP growth for the early 1990s. However, the Department of Statistics (1997) and Renuka M. (1998) show otherwise and Leung's (1997) results are inconclusive for the early 1990s. It is obvious that TFP results can vary significantly from one another and this is due to different methodologies used and different time periods of study. The objective of this article is to critically analyse some of the often-cited cross-country and inter-temporal TFP studies in order to understand the problems that still exist in the analysis of TFP growth. In particular, the conceptual and empirical aspects of the studies are reviewed and suggestions for future research are put forth. Unfortunately, the space constraint and the disparate and complex nature of the various studies reviewed are not amenable to a more integrated approach to the article.3 For instance, a detailed comparison of various methodologies in TFP measure and their caveats as well as data problems in Singapore could not be discussed extensively but an attempt was made to incorporate these issues within the studies whenever possible. …

Total Factor Productivity Growth in the Canadian Life Insurance Industry: 1979-1989

This is the first paper to directly measure and decompose total factor productivity growth (TFPG) for the Canadian life insurance industry. TFPG averaged 1.0 percent per year over the period from 1979 to 1989, thereby outperforming many manufacturing industries. The rate of TFPG was 0.2 percent in the first half of the 1980's due to the depressed economy and 1.9 percent in the last half of the decade. Technological change was the major element contributing to TFPG. There was a large residual element in the decomposition of TFPG, reflecting possible adjustment costs associated with new information processing technologies.

A Note about the Relationship among Transaction Costs, Institutions and Productivity Growth

In order to test the Fuess and van den Berg [I9921 hypothesis on the influence of the increasing transactions sector's costs on the total factor productivity growth rate, the authors perform calculations and estimates of the Solow'S residual for both the total GNP and the non-transactions GNP on Italian data covering the period 1951-89. The results suggest that, as regards the Italian economy, the difference between total and non-transactions productivity growth rate (effect of institutions on material production), rather than having a constant positive sign, as in the findings of Fuess and van den Berg, alternates between negative and positive sign.

Trends in market power and productivity growth rates in US and Japanese manufacturing

Trends were estimated for market power (measured by the price–marginal cost ratio) and the total factor productivity growth rate for US and Japanese manufacturing. Both trends are negative in both countries, but Japan's are significant and much steeper.

The behaviour of productivity growth rates and price-cost margins during contractions and expansions

Panel data on thirteen two-digit US manufacturing industries were analysed using a random coefficients approach to determine the behaviour of total factor productivity growth rates and price—marginal cost ratios during recessions and expansions. Results show: (1) productivity growth is procyclical—it decreases during recessions and increases during expansions. In addition, the decrease during recessions is greater than the increase during expansions; (2) the price-marginal cost ratio is very asymmetric — it decreases during recessions but shows no significant movement during an expansion. The lower price-marginal cost ratio during a recession implies that the elasticity of output with respect to labour decreases. Thus not only does the level of productivity fall, but the productivity of labour relative to capital also falls. These characteristics are consistent with labour hoarding.

Enterprise Productivity and Efficiency: When Is Up Really Down?

A substantial body of literature has documented impressive total factor productivity (TFP) growth in China's state-owned enterprises (SOEs) during the period of China's enterprise reform. Such growth rates have been used to support the view that China's reforms of SOEs have been highly successful. In this paper, we question the validity of using TFP growth rates as a “bottom line” measure of performance. In the spirit of a counterexample, we use a simple model to show that when firms are not profit maximizers for whatever reason, higher productivity may actually lead to greater allocative distortion, lower profits, and lower economic efficiency. On the basis of existing evidence, we argue that these conditions held for many Chinese state enterprises during the reform.J. Comp. Econom.,June 1997,24(3), pp. 265–280. Boston College, Chestnut Hill, Massachusetts 02167; University of Michigan, Ann Arbor, Michigan 48109-1220; and Industrial Relations Center, Carlson School of Management, University of Minnesota, 271 19th Ave. S., Minneapolis, Minnesota 55455.

TOTAL FACTOR PRODUCTIVITY AND THE EFFECTS OF R&D IN AFRICAN AGRICULTURE

This paper calculates multilateral Malmquist indices of total factor productivity (TFP) for agriculture in 47 African countries, for the period 1961–91. The average rate of TFP growth was found to be 1.27 per cent, which is higher than expected, given the pessimistic nature of much of the literature. There is some evidence of convergence in productivity levels, as the countries with low starting levels grew more rapidly. Population pressure on the land also appears to be a major explanation of faster growth, as has been suggested by Boserup and by Hayami and Ruttan's induced innovation hypothesis. However, fitting deterministic and stochastic frontier models shows that the effect of agricultural R&D on TFP growth is also positive and significant. © 1997 by John Wiley & Sons, Ltd.