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Cyclical Productivity in Europe and the United States: Evaluating the Evidence on Returns to Scale and Input Utilization

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ROBERT INKLAAR

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Abstract

This paper studies procyclical productivity growth at the industry level in the United States and three European countries (France, Germany and the Netherlands). Industry-specific demand-side instruments are used to examine the prevalence of non-constant returns to scale and unmeasured input utilization. For the aggregate US economy, unmeasured input utilization seems to explain procyclical productivity. However, this correction still leaves one in three US industries with procyclical productivity. This failure of the model can also be seen in Europe and is mostly concentrated in services industries. Copyright (c) The London School of Economics and Political Science 2006.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0335.2006.00554.x
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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 296 (November)
Pages: 822-841
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Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:822-841

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  2. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  3. Bartelsman, Eric J & Caballero, Ricardo J & Lyons, Richard K, 1994. "Customer- and Supplier-Driven Externalities," American Economic Review, American Economic Association, vol. 84(4), pages 1075-84, September. [Downloadable!] (restricted)
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  6. John G. Fernald & Susanto Basu, 1999. "Why is productivity procyclical? Why do we care?," International Finance Discussion Papers 638, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Hart, Robert A & Malley, James R, 1999. "Procyclical Labour Productivity: A Closer Look at a Stylized Fact," Economica, London School of Economics and Political Science, vol. 66(264), pages 533-50, November. [Downloadable!] (restricted)
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  12. Matthew D. Shapiro, 1996. "Macroeconomic Implications of Variation in the Workweek of Capital," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-2), pages 79-134. [Downloadable!]
  13. Hart, Robert A & Malley, Jim, 1996. "Excess Labour and the Business Cycle: A Comparative Study of Japan, Germany, the United Kingdom and the United States," Economica, London School of Economics and Political Science, vol. 63(250), pages 325-42, May. [Downloadable!] (restricted)
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  14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  16. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April. [Downloadable!] (restricted)
  17. Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 899-927, August. [Downloadable!] (restricted)
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  19. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
  20. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  22. Sbordone, Argia M, 1997. "Interpreting the Procyclical Productivity of Manufacturing Sectors: External Effects or Labor Hoarding?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 26-45, February.
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  23. Vecchi, Michela, 2000. "Increasing Returns, Labour Utilization and Externalities: Procyclical Productivity in the United States and Japan," Economica, London School of Economics and Political Science, vol. 67(266), pages 229-44, May. [Downloadable!] (restricted)
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  25. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Fernald & Brent Neiman, 2006. "Measuring the miracle: market imperfections and Asia's growth experience," Working Paper Series 2006-17, Federal Reserve Bank of San Francisco. [Downloadable!]
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  2. MORIKAWA Masayuki, 2008. "Demand Fluctuations and Productivity of Service Industries," Discussion papers 08030, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  3. Luís Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  4. Lucas Navarro & Raimundo Soto, 2006. "Procyclical Productivity in Manufacturing," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 193-220. [Downloadable!]
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