Sources of the German Productivity Demise: Tracing the Effects of Industry-Level Information and Communication Technology Investment

Abstract. While the United States experienced two successive labor productivity surges in 1995 and 2000, Germany's productivity declined dramatically during the same period. We examine the sources of Germany's productivity demise using the ifo industry growth accounting database that provides detailed industry-level investment information. While much attention has focused on the reduction in German labor hours, our data show that information and communication technology (ICT) investment in Germany was deeply lacking in the mid-1990s as compared with the United States. The transition to the new economy mitigated the German productivity slowdown, but did not reverse it. After 2000, we find that a recovery in Non-ICT investment was offset by a widespread collapse in German total factor productivity. Over half of the German industries (accounting for almost 50 per cent of German output) experienced negative total factor productivity growth. This second major difference between the United States and German industry performance explains Germany's secular departure from the technological frontier.     

Intangible Investment and Changing Sources of Growth in Korea

We examine how intangible investments change the sources of growth in the Korean economy. After constructing a novel industry‐level data set on intangibles, we estimate the contribution of intangible‐intensive industries and other industries to aggregate productivity growth in 1981–2008. The contribution of intangible‐intensive industries to aggregate labour productivity growth has significantly increased, whereas that of other industries has substantially decreased. The increased contribution of intangible‐intensive industries is mainly associated with total factor productivity growth rather than with input growth. This suggests that innovations related to intangible investments in these industries might become a new key source of productivity growth in Korea.     

International Comparisons of Levels of Capital Input and Multi-Factor Productivity

Abstract. The paper uses a method by Christensen et al. to construct cross-country comparisons of the levels of capital input, capital and labour productivity and multi-factor productivity. These results are used to decompose international differences in gross domestic product per capita into differences in labour utilization, information and communication technology (ICT) and non-ICT capital intensity and multi-factor productivity for seven Organisation for Economic Co-operation and Development countries. We provide Monte Carlo estimates to examine the effects of measurement errors in the base data, and these simulations showed that boundaries for the resulting indicators can be important.     

Mind the Gap! International Comparisons of Productivity in Services and Goods Production

Abstract. In this paper, we make a comparison of industry output, inputs and productivity growth and levels between seven advanced economies (Australia, Canada, France, Germany, the Netherlands, United Kingdom and United States). Our industry-level growth accounts make use of input data on labour quantity (hours) and composition (schooling levels), and distinguish between six different types of capital assets (including three information and communication technology (ICT) assets). The comparisons of levels rely on industry-specific purchasing power parities (PPPs) for output and inputs, within a consistent input–output framework for the year 1997. Our results show that differences in productivity growth and levels can be mainly traced to market services, not to goods-producing industries. Part of the strong productivity growth in market services in Anglo-Saxon countries, such as in Australia and Canada, may be related to relatively low productivity levels compared with the United States. In contrast, services productivity levels in continental European countries were on par with the United States in 1997, but growth in Europe was much weaker since then. In terms of factor input use, the United States is very different from all other countries, mostly because of the more intensive use of ICT capital in the United States.     

Sectoral Productivity in the United States: Recent Developments and the Role of IT

Abstract. This paper introduces new estimates of recent productivity developments in the United States, using an appropriate theoretical framework for aggregating industry multi-factor productivity (MFP) to sectors and the total economy. Our work sheds light on the sources of the continued strong performance of US productivity since 2000. We find that the major sectoral players in the late 1990s pickup were not contributors to the more recent surge in productivity. Rather, striking gains in MFP in the finance and business service sector, a resurgence in MFP growth in the industrial sector, and an end to drops elsewhere more than account for the aggregate acceleration in productivity in recent years. Further, some evidence is found for a link between IT intensity and the recent productivity acceleration.     

Productivity Trends in Advanced Countries between 1890 and 2012

In order to examine productivity waves and convergence processes, we study productivity trends, trend breaks, and levels for 13 advanced countries between 1890 and 2012. We highlight two productivity waves, a big one following the second industrial revolution and a smaller one following the ICT revolution. The convergence process has been erratic, halted by inappropriate institutions, technology shocks, financial crises, and above all wars, which led to major productivity level leaps, downwards for countries experiencing war on their soil, and upwards for other countries. Productivity trend breaks have been identified following wars, global financial crises, global supply shocks, and major policy changes. The upward trend break for the U.S. in the mid‐1990s has been confirmed, as has the downward trend break for the euro area in the same period.     

On the Dynamics of Basic Growth Models: Ratio Stability vs. Convergence and Divergence in State Space

Abstract. We show for a class of basic growth models that convergence in ratios does not imply the pathwise convergence to the corresponding balanced growth path in the state space. We derive conditions on parameters and on the elasticity of the savings function for convergence or divergence and apply our results to the Solow model, an augmented Solow model as well as to an optimal growth model. An implication for the convergence debate is that two economies that differ only in the initial capital stock and converge in per capita terms might diverge to infinity in absolute terms.     

ICT and Growth: The Role of Rates of Return and Capital Prices

We revisit the widely discussed contribution of investment in ICT to economic growth, focusing on differences in productivity and quality of ICT across countries and time. In a growth accounting approach, we look at the way rates of return and rates of asset price decline measure these aspects. Conducting a sensitivity analysis with data from the EU KLEMS database for the years 1990–2007, we introduce a constant rate of return and a constant rate of ICT price decline. Both alternative measurements somewhat downplay the role investment played relative to growth in multifactor productivity in the U.K. and the U.S. during 1995–2000. Moreover, we show that more than half of the ICT contribution to labor productivity growth results from changes in capital quality and composition rather than from quantity.     

Export Growth,Capacity Utilization,and Productivity Growth: Evidence from the Canadian Manufacturing Plants

Aggregate labor and multifactor productivity growth slowed substantially post‐2000 in the Canadian manufacturing sector. To examine the source of the decline, this paper proposes a decomposition method that delves deeper into the two micro‐components of aggregate productivity growth: a within‐plant component and a between‐plant component. The decomposition builds on earlier work by Jorgenson and his collaborators that decomposes aggregate productivity growth into its industry components, but applies it to the plant level and introduces non‐neoclassical features of the plant‐level economic environment. It finds that the preponderance of the aggregate labor and multifactor productivity growth slowdown is due to the pro‐cyclical nature of productivity growth arising from capacity utilization. Almost all of the aggregate productivity growth slowdown is driven by exporters, as exporters experienced large declines in labor productivity growth in the post‐2000 period as a result of large declines in their capacity utilization.     

On the release of information by governments: Causes and consequences

The release of economic and social data by a government provides many benefits to its citizens on a number of different levels. Information has value in itself (for example, to facilitate a more efficient allocation of resources), but it could also perhaps be seen as a signal of the degree of political and institutional transparency. In order to evaluate the potential association between the release of information and the institutional and economic circumstances across countries, a new index is developed that has extensive coverage across countries (175) and time (1960–2000), and is based on the quantity of reported socio-economic data contained in the World Development Indicators and the International Finance Statistics databases. Using a series of Granger-causality regressions, the release of information by governments is shown to have a significant positive effect on the quality of the bureaucracy in the short run and, in the longer term, a significant effect on investment and financial sector development. In terms of reverse causality, the evidence shows that the degree of constraints on the executive branch of government and education both have a positive effect on the quantity of data released by governments.     

The Impact Of Computer Prices On International Comparisons Of Labour Productivity

This paper analyses the international comparability of methods used to convert the value added of the office and computing machinery sector (OCM) into constant prices for nine OECD countries. It concludes that the variations which exist in the price indexes are largely due to differences in the methods countries use to capture changes in the quality of an industry's output over time. The paper evaluates the impact of these different OCM price indexes on the growth rate of labour productivity during the 1980s by conducting a sensitivity test where the US OCM index is substituted for each of the individual country indexes. This experiment causes the OCM labour productivity growth rate to change by over a factor of ten for several countries. This result suggests that international comparisons of labour productivity should not be made for the OCM sector using the official data, and that labour productivity comparisons of sectors OCM belongs to—non-electrical machinery and fabricated metal products and machinery—should be conducted cautiously, if at all.     

THE MECHANICS OF ECONOMIC GROWTH THROUGH CAPITAL ACCUMULATION AND TECHNOLOGICAL PROGRESS*

This study develops a model wherein capital is used in final goods production and research and development (R&D) activities. This arrangement generates changes of the equilibrium capital allocation corresponding to capital endowment, which engenders a regime change from capital based growth with decreasing returns to R&D based perpetual growth. These two growth phases account for the polarization of economies. The model also engenders multiple equilibria on capital allocation—which emerge during the middle stages of capital accumulation—accounting for leapfrogging and the instability of the economic growth of developing countries with medium capital accumulation.     

Information Technology and the World Growth Resurgence

Abstract. This paper analyzes the impact of investment in information technology (IT) on the recent resurgence of world economic growth. We describe the growth of the world economy, seven regions, and 14 major economies during the period 1989–2004. We allocate the growth of world output between input growth and productivity and find, surprisingly, that input growth greatly predominates! Moreover, differences in per capita output levels are explained by differences in per capita input, rather than variations in productivity. The contributions of IT investment have increased in all regions, but especially in industrialized economies and Developing Asia.     

Finance–Growth Nexus and the P‐bias: Evidence from OECD Countries

Recent studies provide new empirical evidence confirming that financial development is linked to economic growth in OECD countries. Using new dynamic panel regression techniques, these appraisals indicate that within the group of high‐income countries stock market size as a measure of financial advancement contributes significantly to overall economic activity. Applying the same advanced techniques, this paper questions this conclusion by showing that the findings of these studies seem to be not only not robust with respect to adding new observations but also likely to be plagued by a severe price bias which belittles the information content of the used financial indicator (stock market capitalization). We provide evidence that anticipative price effects (i.e. expectations of future growth, reflected in current stock prices) may be driving the statistical relationship between stock market activities and economic growth in high‐income countries to a much larger extent than recent analyses of the finance– growth link in OECD countries suggest .     

Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?

Abstract. We present a non-scale continuous-time overlapping-generations growth model that provides an explanation for why economies with relative wage rigidity feature higher unemployment, but not slower productivity growth, than economies with flexible wages. The compression of the wage distribution associated with relative wage rigidity slows down human capital accumulation and growth ceteris paribus . But unemployment among the low-skilled workers strengthens the incentives to invest in human capital and, hence, growth. The two effects are offsetting, and growth is independent of the prevailing degree of relative wage rigidity. This knife-edge result is robust with respect to some modifications of the model.     

Economic liberalization and price response of aggregate private investment: time series evidence from India

Abstract.  This paper presents evidence on the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in India. The wide ranging reforms are expected to increase the price response of private investment due to (i) the Le Chatelier effect, (ii) a higher price elasticity of demand for final goods, and (iii) possible relaxation of the credit constraint. The empirical results, based on alternative specifications, estimation methods, and sample periods, show a dramatic increase in the price response; the elasticity of investment with respect to the relative cost of capital has increased five times after the dismantling of the 'Licence Raj.'     

Good governance and good aid allocation

We model the aid allocation process as a rent-seeking contest between two countries and investigate the effects of differing allocation rules on recipients' behavior in a simple framework. We investigate the aid allocation mechanism design that attempts to increase the governance quality of potential recipient countries: the potential recipients spend costly resources improving governance, while the donor country allocates the fund based on their governance quality. The paper compares two mechanisms: one uses a simple winner-takes-all tournament to award the entire available purse to the country with the best governance; while under the other aid is distributed among countries in proportion to their governance qualities. The paper shows the second mechanism outperforms the first only if competing countries are sufficiently asymmetric. Moreover, the recipient who is most effective in governance – and stands to benefit the most from development assistance – has interests opposite to those of the donor. In addition, the paper shows that if the donor country allocates the fund based on both governance and the levels of poverty, it may result in a poverty trap: the leaders of potential recipient countries deliberately allocate funds away from the poorest so as not to better their position in order to receive more aid.     

Offshoring,Sourcing Substitution Bias,and the Measurement of Growth in U.S. Gross Domestic Product and Productivity

The decade before the financial crisis of 2008 was a time of large changes in sourcing patterns for manufactured goods, particularly after China's entry into the WTO in 2001. Sourcing substitution reduced the prices paid by wholesale level buyers of these goods, but these price reductions were mostly not captured in the U.S. import price indexes and the U.S. GDP deflator. To find plausible values for sourcing bias we first use data on changes in sourcing patterns over 1997–2007 to predict the effect of the reported price discount from the new emerging market suppliers. Next, we compare adjusted import price indexes for products used for household consumption with consumer price indexes. In the GDP deflator for apparel imports, sourcing bias is found to average 0.6 percent per year, and for durable goods it averages 1 percent per year. During the decade of rapidly changing sourcing patterns, a tenth of the reported speedup in multifactor productivity growth of the U.S. private business sector may have come from sourcing bias in the deflators for imports.     

Information and Communications Technology as a General-Purpose Technology: Evidence from US Industry Data

Abstract. Many people point to information and communications technology (ICT) as the key for understanding the acceleration in productivity in the United States since the mid-1990s. Stories of ICT as a 'general-purpose technology' suggest that measured total factor productivity (TFP) should rise in ICT-using sectors (reflecting either unobserved accumulation of intangible organizational capital; spillovers; or both), but with a long lag. Contemporaneously, however, investments in ICT may be associated with lower TFP as resources are diverted to reorganization and learning. We find that US industry results are consistent with general-purpose technology (GPT) stories: the acceleration after the mid-1990s was broad-based – located primarily in ICT-using industries rather than ICT-producing industries. Furthermore, industry TFP accelerations in the 2000s are positively correlated with (appropriately weighted) industry ICT capital growth in the 1990s. Indeed, as GPT stories would suggest, after controlling for past ICT investment, industry TFP accelerations are negatively correlated with increases in ICT usage in the 2000s.