Technological catch-up or resource rents?

This paper studies contribution of capital deepening, technological progress and efficiency improvement to economic growth while focusing on cross-country data, and thus finds itself at the crossroads of growth and development accounting. We take a production frontier approach to growth accounting and choose DEA as the frontier estimation method. To explore the effects that windfall gains from natural resource use have on growth, output data are corrected for pure natural resource rents—part of GDP figures not earned by either labor or capital. Taking into account countries’ natural resources, we find that in the two decades from 1970 to 1990 the average contribution of technological catch-up to per worker output growth was, if anything, negative on the worldwide scale and this trend continued till the mid 1990ies. Analysis of efficiency estimates also shows a possible change over the period of 1970–1990 in the effect of natural resources on country’s performance     

Hitting the Great Wall: Structural change and China's growth slowdown

China is facing slowing growth rates, slowing rates of rural to urban migration and resistance to reforms that would liberalize internal migration restrictions (Hukou). We use a two sector Ramsey growth model and show that, allowing for endogenous capital accumulation, labour reallocation has accounted for approximately one fifth of China's per capita GDP growth over the last 30 years, and that Hukou reform could generate a significant boost to China's per capita GDP growth over the next decade. Our results contrast with conclusions drawn from the traditional growth accounting literature on labour reallocation effects in China because our simulation method allows for endogenous capital accumulation dynamics.     

Growth, Technological Change, and ICT Diffusion: Recent Evidence from OECD Countries

In this paper we present an overview of GDP and productivitygrowth patterns in OECD countries over the past decade, on thebasis of harmonized data. Our evidence suggests that fast-growingcountries generally shared three characteristics: improvementsin labour utilization; a generalized enhancement in human capital;and rapid shifts in the composition of physical capital towardsinformation and communication technology (ICT) equipment. Particularly,we show that technological change embodied in new ICT capitalgoods has been a primary source of output and productivity growthin ICT-using sectors. The international comparison allows relatinggrowth patterns to institutional and policy indicators, therebyoffering some preliminary insights into the potential sourcesof growth disparities. Cross-country evidence yields some tentativesupport to the idea that institutional factors affecting competitionin the product market are likely to affect productivity patterns,especially in a period of rapid diffusion of a general-purposetechnology (such as ICT).     

Germany’s Stalling Economic Engine – How to Get it Running Again

Summary The German economy, once the powerhouse in Europe, is stalling. Unemployment has ratcheted upward since 1970, the social security systems can no longer be financed (even if the population were not ageing) and with an average annual GDP growth rate of 1.2 per cent since 1995, the economy almost stagnates. This paper analyses and suggests solutions to Germany’s three main challenges. To undo the adverse incentives with respect to unemployment, the institutional design for wage formation should be decentralized, the reservation wage adjusted and the tax on labour reduced. To make the social security systems sustainable, the level of social absorption has to be lowered. And, finally, to achieve a more dynamic economy, new stimuli for growth have to be unleashed, including human capital formation and innovation, which are vital for the knowledge society. The role of government has to be rethought and the German social market economy redefined. Jelle Zijlstra Professorial Fellow at the Netherlands Institute for Advanced Study during September 2004–January 2005, Agip Professor in International Economics at Johns Hopkins in Bologna and President-Emeritus, Kiel Institute of World Economics. The paper is a revised version of the Jelle Zijlstra Lecture, held on January 13, 2005 at the Free University of Amsterdam.     

The New Economy in Europe, 1992-2001

Despite the fast catching up in the diffusion of informationand communication technologies (ICT) experienced by most EUcountries in the last few years, information technologies haveso far delivered few productivity gains in Europe. In the secondhalf of the past decade, the growth contributions from ICT capitalrose in six EU countries only (the UK, Denmark, Finland, Sweden,Ireland, and Greece). Unlike in the USA, this has not generallybeen associated with higher labour or total factor productivity(TFP) growth rates, the only exceptions being Ireland and Greece.Particularly worrying, the large countries in Continental Europe(Germany, France, Italy, and Spain) showed stagnating or mildlydeclining growth contributions from ICT capital, together withdefinite declines in TFP growth compared to the first half ofthe 1990s. It looks as though the celebrated ‘Solow paradox’on the lack of correlation between ICT investment and productivitygrowth has fled the USA and come to Europe.     

Empirical Evidence of Productivity Growth in Tunisian Agriculture: 1961–2000

Abstract: This paper investigates the patterns of productivity growth in Tunisian agriculture during the period 1961–2000. Results indicate that output growth in Tunisian agriculture was high over the whole period of investigation. During the 1981–90 period, average output grew at an impressive rate exceeding 6 per cent. Over the whole period, capital was the most important contributor to output growth and labour was found to be the least significant contributor to economic growth. Total factor productivity contribution to output growth decreased from over 4 per cent in both the 1961–70 and 1981–90 periods to less than 3 per cent in both the 1971–80 and 1991–2000 periods. On average, productivity growth increased at an annual rate of 3.6 per cent.     

Economic Convergence in the African Continent: Closing the Gap

The paper attempts to analyse the conditional β‐convergence and its sources for 32 African countries over the period 1960‐2008. The augmented Solow model with both gross domestic product (GDP) per worker and per capita income is estimated using the dynamic system generalized methods of moments (GMM) technique with the panel data. This is the first study on the sources of conditional β‐convergence for African countries. According to the results of the augmented Solow model, income convergence rates are lower than those of GDP per worker. Moreover, total factor productivity convergence, human capital convergence and capital labour convergence are contributing towards the convergence of GDP per worker in Africa. This means that growth in the poorest African countries is being augmented by “catch‐up factor,” which is good news for them. However, convergence in terms of GDP per worker is not being fully translated into income per capita convergence. The demographic structure in the African continent with its record of persistent population growth has played an important role in lowering the income convergence of its countries.     

An Overview of the Proximate Determinants of Economic Growth in Indonesia Since 1960*

In this paper, we address two questions. First, what determined the growth of GDP per worker in Indonesia from 1960 to 2014? We examine Indonesia’s economic performance, using a growth accounting framework. We show that economic growth during the Soeharto era after 1975 was mainly determined by an increase in capital accumulation. Negative growth in total factor productivity (TFP) during the Asian financial crisis was more noticeable in Indonesia than in comparable ASEAN countries. In Indonesia, the contribution of TFP growth turned persistently positive after 1999. Second, what are the key determinants of the GDP per worker differences between Indonesia and the United States? Using data from the recently updated Penn World Table database and employing a levels accounting method, we find that the gap in physical capital deepening between the two countries is of declining importance in explaining the gap in labour productivity between Indonesia and the United States. We then compare our findings with data from the World Bank’s Changing Wealth of Nations 2018.     

Indonesia's Ascent on the Technology Ladder: Capital Stock and Total Factor Productivity in Indonesian Manufacturing, 1975–95

This paper presents new capital stock estimates for mium and large-scale manufacturing in Indonesia using the Perpetual Inventory Method. Capital stock grew gradually during 1975–88, at an annual rate of 7.6%, then boomed during 1989–95 at 13.6% per annum. Growth accounting shows that 60% of the rapid growth of manufacturing output during the period 1975–95 was due to capital input growth, 18% to labour input growth and the remaining 22% to total factor productivity (TFP) growth. There is no evidence of a shift of factor inputs towards more efficient industries. TFP growth averaged 3% annually in 1975–95. Performance varied greatly across industries, but the policy changes that have taken effect since 1986 have definitely been beneficial for all industries. Put in an international perspective, however, Indonesia's TFP levels show no signs of catch-up with the world frontier.     

Why did socialist economies fail? The role of factor inputs reconsidered

This article presents new estimates for investment and new growth accounts for three socialist economies between 1950 and 1989. Government statistics reported distorted measures for both the rate and the trajectory of productivity growth in Czechoslovakia, Hungary, and Poland. Researchers have benefited from revised output data, but have continued to use official statistics on capital input, or estimated capital stock from official investment data. Investment levels and rates of capital accumulation were much lower than officially claimed and over‐reporting worsened over time. A setback in factor accumulation—both investment in equipment and labour input—contributed very significantly to the socialist growth failure of the 1980s.     

Total factor productivity in South African agriculture, 1947‐91

Indices of total factor productivity (TFP) measure aggregate output per unit of aggregate input, providing a guide to the efficiency of agricultural production. This article outlines the relationship between production functions and TFP indices. Then, an index is constructed for South African agriculture for the period 1947‐91. The index shows that TFP grew at an average rate of 1,3 per cent per annum. However, TFP growth has increased since the reforms of the early 1980s. Since capital has been more realistically priced relative to labour, greater productivity growth has gone together with increasing employment, which must have improved social welfare.     

Population trends,employment levels,economic performance,and income evolution in East and West Germany since unification

Between 1989 and 1996, former East Germany experienced a population loss of more than 1 million inhabitants as hundreds of thousands of East Germans moved to former West Germany. Population growth in East Germany sank dramatically, since 1995, however, since 1995, this trend has been reversed and today more children are born than in the preceding year.The number of gainfully employed East Germans shrank between 1989 and 1993 by 3.5 million. Job loss hit female employees, who in East Germany prior to 1989 formed a part of the job force in proportion to their number, especially hard. In 1994 and 1995, employment increased in the East German states, but job growth did not extend into 1996 as economic growth, which sustained a process of “catching up” with West Germany, failed to maintain its dynamism.Economic performance disparity between East and West Germany is very large. Although productivity increased significantly in former East Germany, wage costs outran productivity growth. Per capita income in East Germany in 1991 was 49 percent of per capital income in West Germany and as of 1994 per capita income had reached 66 percent of its West German equivalent.     

Capital deepening and the rise of the factory: the American experience during the nineteenth century1

Between 1850 and 1880, capital per worker in United States manufacturing increased on average by at least 75 per cent, even after taking account of declining capital goods prices. During this same period, production shifted from small, labour‐intensive artisan shops to large capital‐intensive factories. Similar changes have occurred in many other countries at the same stage of industrialization. Establishment‐level data from the federal censuses of manufacturing, however, reveal that the shift in production in the United States accounts for a modest amount of the increased capital per worker. There, at least, capital deepening seems to have occurred in almost all firms everywhere.     

Total capital and economic growth

In contrast to the official estimates of gross private domestic investment and associated capital stocks prepared by the Bureau of Economic Analysis (BEA), the author presents estimates of total investment and capital, human and nonhuman, tangible and nontangible, by all sectors of the U.S. economy. Total investment is 3.1 times the BEA estimate in 1929, rising to 4.1 times in 1990. It accounts for almost half of adjusted GDP in the latter year. As hypothesized, real total capital stocks rise at about the same 2.9 percent average annual rate as real gross domestic product 1929–90, 0.1 percentage points more in the total economy and 0.2 points less in the predominant business sector. Increases in nontangible capital (mainly education, training, health, and research and development—“R&D”-) largely explain the growth in total tangible factor (capital) productivity in the whole economy. Nontangible, human capital has grown relatively faster in the business sector than in the entire economy, helping to explain its more rapid productivity advance. The author recommends that when BEA shifts to the U.N. standard system of accounts, it include nontangible and human tangible investments and capital in “satellite” accounts, as well as tangible investments for all sectors in the core accounts. This will greatly facilitate the analysis of economic growth. Presidential Address at the Thirty-Sixth Atlantic Economic Society Conference, October 7–10, 1993, Philadelphia, Pennsylvania.     

DEPENDENT GROWTH IN A CAPITAL-IMPORTING ECONOMY: THE CASE OF PUERTO RICO

LIKE most less developed capitalist economies, Puerto Rico hasrelied heavily on external capital. The long-run implicationsof externally financed growth are explored for Puerto Rico underalternative assumptions about domestic saving behaviour; theextent of external ownership and the gap between productionand income are projected. The 1950-70 pattern of growth impliedthat eventually about 25 per cent of GDP would be repatriatedand 90 per cent or more of the capital stock would be externallyowned. Recent events suggest that this pattern will be difficultto sustain.     

The historical roots of India’s service-led development: A sectoral analysis of Anglo-Indian productivity differences, 1870-2000

India fell further behind the UK in terms of GDP per capita and overall labour productivity between the 1870s and the 1970s, but has been catching-up since. This paper offers a sectoral analysis of these trends. Comparative India/UK labour productivity in agriculture has declined continuously, and agriculture still accounts for around two-thirds of employment in India. Agriculture thus played a key role in India’s falling behind and has subsequently slowed down the process of catching up. Although there have been substantial fluctuations in comparative India/UK labour productivity in industry, this sector has exhibited no long run trend. The only sector to exhibit an upward trend in comparative India/UK labour productivity is services. India’s recent emergence as a dynamic service-led economy thus appears to have long historical roots. Although India has been characterised by relatively low levels of physical and human capital formation overall, its education provision has historically been unusually skewed towards secondary and tertiary levels. This has provided a limited supply of high productivity workers who have been employed predominantly in services.     

Gender Inequalities and Economic Efficiency: New Evidence from Cassava‐based Farm Holdings in Rural South‐western Nigeria

Abstract: It is a widely accepted fact that persistent inequality between men and women constrains a society's productivity and ultimately slows its rate of economic growth. The economy pays for this inequality in reduced labour productivity today and diminished national output tomorrow. Motivated by this, the study aim is to assess the possibilities of enhancing productivity gains by improving the efficiency of small‐scale agriculture through gender‐responsive intra‐household allocation of resources in south‐western Nigeria. The study adopts a stochastic parametric decomposition method which yields efficiency measures that are not distorted by statistical noise to estimate the efficiency level of resource allocation by small‐scale cassava producers. The results indicate that average overall productive efficiency in the sample was 75.78 per cent, implying that small‐scale cassava farmers in the sample could reduce total variable cost by 24.22 per cent if they reduce labour, fertilizer, land and capital applications to levels observed in the changing input mix (technical efficiency) and then obtain optimal input mix for the given input prices and technology (allocative efficiency). The average technical efficiency and allocative efficiency indexes for the sample were 82.2 per cent and 92.2 per cent respectively. Also, evidence from empirical analysis of data from the male respondents showed that the average economic, technical and allocative efficiency indexes were 88.06 per cent, 89.34 per cent and 78.67 per cent respectively while the same computed for the female sample were 94.9 per cent, 74.85 per cent and 71.03 per cent respectively. Labour was the most limiting factor in cassava production suggesting that the technologies that enhance the productivity of labour are likely to achieve significant positive effects on cassava production. The paper shares the notion that producers' control over the means of production and impact of development are related and has influence on the economic efficiency and growth of society. Again, technical inefficiency constituted a more serious problem than allocative inefficiency, thus most cost savings will accrue to improvement in technical efficiency.     

The Global Financial Crisis and Sub‐Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth*

Abstract: This paper uses the bias‐corrected least‐squares dummy variable (LSDV) estimator to examine the relationship between economic growth and four different types of private capital inflows (cross‐border bank lending, foreign direct investment (FDI), bonds flows and portfolio equity flows) on a sample of 15 selected sub‐Saharan African countries over the period 1980–2008. Our results show that FDI and cross‐border bank lending exert a significant and positive impact on sub‐Saharan Africa's growth, whereas portfolio equity flows and bonds flows have no growth impact. Our estimates suggest that a drop by 10 per cent in FDI inflows may lead to a 3 per cent decrease of income per capita growth in sub‐Saharan Africa, and a 10 per cent decrease in cross‐border bank lending may reduce growth by up to 1.5 per cent. Therefore, the global financial crisis is likely to have an important effect on sub‐Saharan Africa's growth through the private capital inflows channel.     

Notes And Communications

This communication sketches in headlines long term developments in American and European banking. Contrary to the expectation of both practitioners and theorists in the nineties, has the role of banks in the economy not diminished but increased. This is demonstrated by the long term increase of bank credit as a percentage of GDP (resulting in a stronger growth of M2 and 3 than GDP), a growing contribution of bank sector income to GDP, growing employment (until recently) and a growing share of bank shares in total market capitalisation over the past three decades until 2004–2006. This growing share may have been induced by a comparatively superior performance, supported by a relatively high dividend yield, despite a lower-than-average price-earning ratio. Banks counteracted increased competition and disintermediation tendencies in their traditional lending business by a progressive involvement in capital markets. They developed themselves, in several functions, these markets. For this reason the often used distinction between bank-based and market-based financial systems is less meaningful. Capital markets function thanks to banks. Even more because a rapidly growing volume of new, unlisted investment instruments are constructed by banks and traded over their counter. By this development the risk absorbing and intermediating function of banks – being their basic function in the financial system – is also accentuated. The professional capability of leading banks to fulfil this basic function has in the current “sub prime” crisis come under severe criticism.     

Productivity, innovation and ICT in Old and New Europe

This paper investigates the productivity performance of CEE countries vis-à-vis the EU-15 during the 1990s to detect sources of convergence between the two regions. The paper shows that changes in labour intensity have been an important source of productivity convergence during the 1990s, and are likely to remain so in the near future. It is also found that despite lower income levels, ICT capital in the CEE-10 has contributed as much to labour productivity growth as in the EU-15. Industry analysis shows that manufacturing industries that have invested heavily in ICT have been key to the restructuring process. As such ICT may therefore have been an important source of growth but probably temporary source of convergence. In the longer run the impact of ICT on growth will have to come primarily from its productive use in services. The paper therefore includes a New Economy Indicator that reflects the existence of conducive environment for continued ICT investment and diffusion. It shows that further reforms are much needed for CEE countries to enter a second convergence phase in the coming decades.This paper is written as part of a project on Information & Communication Technologies as Drivers of Economic Development in Post-Communist Countries sponsored by USAid (Grant No. 220/001.6). The industry data for the EU-15 (section 4) are updated estimates derived from a study sponsored by DG Enterprise of the European Union (OMahony and van Ark 2003). We are grateful to Robert Inklaar and Edwin Stuivenwold for statistical assistance, and to various commentators on this paper at seminars and workshops. We benefited in particular from comments by Bart Los and Marcel Timmer. The authors are solely responsible for the results presented and any remaining omissions.