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Productivity and the Welfare of Nations

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  • Basu, Susanto

    (Boston College and NBER)

  • Pascali, Luigi

    (University of Warwick)

  • Schiantarelli, Fabio

    (Boston College and IZA)

  • Serven, Luis

    (World Bank)

Abstract

We show that the welfare of a country’s in nitely-lived representative consumer is summarized, to a rst order, by total factor productivity (TFP) and by the capital stock per capita. These variables su¢ ce to calculate welfare changes within a country, as well as welfare di¤erences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not rms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.

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Bibliographic Info

Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 163.

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Date of creation: 2013
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Handle: RePEc:cge:wacage:163

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Keywords: Productivity; Welfare; TFP; Solow Residual.;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Total Factor Productivity as a Measure of Welfare
    by dvollrath in The Growth Economics Blog on 2014-09-03 21:02:47
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Cited by:
  1. Nicholas Oulton, 2012. "Hooray for GDP!," LSE Research Online Documents on Economics 47498, London School of Economics and Political Science, LSE Library.
  2. Basu, Susanto & Pascali, Luigi & Schiantarelli, Fabio & Serven, Luis, 2012. "Productivity and the Welfare of Nations," IZA Discussion Papers 6461, Institute for the Study of Labor (IZA).
  3. Dollar, David & Kleineberg, Tatjana & Kraay, Aart, 2014. "Growth, inequality, and social welfare : cross-country evidence," Policy Research Working Paper Series 6842, The World Bank.
  4. Hyytinen, Ari & Maliranta, Mika, 2013. "Firm lifecycles and evolution of industry productivity," Research Policy, Elsevier, vol. 42(5), pages 1080-1098.
  5. Ezra Oberfield, 2012. "Online Appendix to "Productivity and Misallocation During a Crisis: Evidence from the Chilean Crisis of 1982"," Technical Appendices 11-215, Review of Economic Dynamics.

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