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Productivity versus welfare: or, GDP versus Weitzman's NDP

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Nicholas Oulton

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Abstract

How should productivity and welfare be measured when the composition of the capital stock is shifting towards assets with shorter lives? What sort of adjustment, if any, should be made for depreciation? While GDP is still appropriate as a measure of output, in this paper it is argued that NDP (WNDP)-nominal net domestic product deflated by the price index for consumption-is the appropriate measure of welfare. The rate at which the WNDP frontier is shifting out over time is analogous to the rate of growth of aggregate total factor productivity (TFP). Like the latter, it may be decomposed into the contributions made by TFP growth in individual industries, though with a different pattern of weights. The argument is illustrated by the experience of the United States in the 1990s. Here net investment increased more rapidly than gross investment and both grew faster than GDP, while the aggregate depreciation rate rose. Nevertheless the aggregate capital stock grew more slowly than GDP, and depreciation as a proportion of GDP was flat. Both official NDP and WNDP have been growing a little more slowly than GDP. But the acceleration of WNDP post 1995 was as great as that of GDP. Also, the rise in the growth rate of the WNDP frontier was equal to that of aggregate TFP.

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Paper provided by Bank of England in its series Bank of England working papers with number 163.

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Handle: RePEc:boe:boeewp:163

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References listed on IDEAS
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. Karl Whelan, 2001. "A two-sector approach to modeling U.S. NIPA data," Finance and Economics Discussion Series 2001-04, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  2. Oulton, Nicholas, 2001. "Must the Growth Rate Decline? Baumol's Unbalanced Growth Revisited," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 605-27, October.
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  3. Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
  4. Diewert, Erwin, 2007. "Index Numbers," UBC Departmental Archives diewert-07-01-03-08-17-23, UBC Department of Economics, revised 31 Jan 2007. [Downloadable!]
  5. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: US Economic Growth in the Information Age," OECD Economics Department Working Papers 261, OECD, Economics Department. [Downloadable!]
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  6. Martin L Weitzman, 1999. "A Contribution to the Theory of Welfare Comparisons," Harvard Institute of Economic Research Working Papers 1864, Harvard - Institute of Economic Research.
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  7. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  8. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, vol. 46(6), pages 963-991, June. [Downloadable!] (restricted)
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  9. Bradford, David F, 1990. "Extended Accounts for National Income and Product: Comment," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1183-86, September. [Downloadable!] (restricted)
  10. Scott, Maurice, 1990. "Extended Accounts for National Income and Product: A Comment," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1172-79, September. [Downloadable!] (restricted)
  11. Michael R. Pakko, 2001. "What happens when the technology growth trend changes?: transition dynamics, capital growth and the "new economy"," Working Papers 2001-020, Federal Reserve Bank of St. Louis. [Downloadable!]
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  12. Sefton, J. A. & Weale, M. R., 1996. "The net national product and exhaustible resources: The effects of foreign trade," Journal of Public Economics, Elsevier, vol. 61(1), pages 21-47, July. [Downloadable!] (restricted)
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  13. Weitzman, Martin L, 1997. " Sustainability and Technical Progress," Scandinavian Journal of Economics, Blackwell Publishing, vol. 99(1), pages 1-13, March. [Downloadable!] (restricted)
  14. repec:cup:cbooks:9780521556231 is not listed on IDEAS
  15. Weitzman, Martin L, 1976. "On the Welfare Significance of National Product in a Dynamic Economy," The Quarterly Journal of Economics, MIT Press, vol. 90(1), pages 156-62, February. [Downloadable!] (restricted)
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  16. Jayasri Dutta & James Sefton & Martin R. Weale, 2000. "Real National Income," NIESR Discussion Papers 163, National Institute of Economic and Social Research. [Downloadable!]
  17. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March. [Downloadable!] (restricted)
  18. Martin N. Baily & Robert Lawrence, 2001. "Do We Have A New E-Conomy?," NBER Working Papers 8243, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(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. Jorge Durán & Omar Licandro & Luis A. Puch, 2006. "Sobre la medición del crecimiento económico en presencia de progreso técnico incorporado," Working Papers 2006-24, FEDEA. [Downloadable!]
  2. Nicholas Oulton, . "Investment-specific technological change and growth accounting," Bank of England working papers 213, Bank of England. [Downloadable!]
    Other versions:
  3. Nicholas Oulton, 2004. "A Statistical Framework for the Analysis of Productivity and Sustainable Development," CEP Discussion Papers dp0629, Centre for Economic Performance, LSE. [Downloadable!]
  4. Nicholas Oulton & Sylaja Srinivasan, . "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England. [Downloadable!]
  5. Voxi Heinrich S. Amavilah, 2005. "The National Wealth of Selected Countries - A Descriptive Essay," Development and Comp Systems 0508007, EconWPA. [Downloadable!]
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