Trends of labour productivity in Italy: a study with panel co‐integration methods

Purpose - The main aim of this paper is to examine labour productivity trends in Italy over the period 1981‐2004. Design/methodology/approach - To this end, relying on recent developments in the analysis of non‐stationary dependent panels, the paper develops a new method for estimating total factor productivity (TFP) trends. Findings - The conclusions confirm the view that the recent decline in Italian labour productivity growth is mostly due to a widespread fall in TFP growth. Research limitations/implications - The main assumption underlying the proposed TFP estimation method is that technology growth is driven by a single trend common to all units included in the panel (industries, regions or countries). Originality/value - The paper provides two distinct contributions: empirically, it provides robust evidence that TFP slow‐down is the main cause of recent negative trends in labour productivity in Italy. Methodologically, the paper proposes an approach to estimating TFP that enjoys several advantages: only basic data for input and output flows are needed, the non‐stationary nature of the data is explicitly taken into account, and confidence intervals for TFP growth can be computed. This method can thus be easily applied to many routinely available datasets, to either corroborate existing growth accounting estimates or to obtain previously unavailable estimates.