Five Puzzles in the Behaviour of Productivity, Investment and Innovation
AbstractProductivity growth in the United States was considerably faster during 2000-03 than in the boom years of 1995-2000. This ebullient productivity performance raises numerous questions about its interpretation and its implications for the future, and these are stated here in the form of five puzzles. (1) Whatever happened to the cyclical effect? Skeptics were justified on the basis of data through the end of 1999 in their claim that part of the post-1995 productivity growth revival reflected the normal cyclical correlation between productivity and output growth. In contrast, data through mid-2003 reveal only a negligible cyclical effect for 1995-99 but rather a temporary ‘bubble’ in 2002-03. (2) Why did productivity growth accelerate after 2000 when the ICT investment boom was collapsing? The most persuasive argument points to unusually savage corporate cost-cutting and ‘hidden’ intangible investments in the late 1990s that provided productivity benefits after 2000. (3) The steady decline in the price of computer power implies steady technical progress, but then why did computers produce so little productivity growth before 1995 and so much afterwards? We draw an analogy to electricity, where miniaturization was the key step in making small electric motors practicable, and the internal combustion engine, where complementary investments, especially roads, were necessary to reap benefits. (4) What does the collapse of the investment boom imply about the future of innovation? First-rate inventions in the 1990s, notably the web and user-friendly business productivity software, are being followed by second-rate inventions in the current decade. (5) Finally, why did productivity growth slow down in Europe but accelerate in the US? A consensus is emerging that US institutions foster creative destruction and financial markets that welcome innovation, while Europe remains under the control of corporatist institutions that dampen competition and inhibit new entry. Further, Europe lacks a youth culture like that of the US which fosters independence: US teenagers work after school and college students must work to pay for much of their educational expense. There is a chasm of values across the Atlantic.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4414.
Date of creation: Jun 2004
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Robert J. Gordon, 2004. "Five Puzzles in the Behavior of Productivity, Investment, and Innovation," NBER Working Papers 10660, National Bureau of Economic Research, Inc.
- A10 - General Economics and Teaching - - General Economics - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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.:
- C.J. Krizan & John Haltiwanger & Lucia Foster, 2002.
"The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade,"
02-18, Center for Economic Studies, U.S. Census Bureau.
- Lucia Foster & John Haltiwanger & C.J. Krizan, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," NBER Working Papers 9120, National Bureau of Economic Research, Inc.
- Paul A. David & Gavin Wright, 1999.
"Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of "Our Ignorance","
Oxford University Economic and Social History Series
_033, Economics Group, Nuffield College, University of Oxford.
- Paul David & Gavin Wright, 1999. "Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of Our Ignorance," Economics Series Working Papers 1999-W33, University of Oxford, Department of Economics.
- Paul A. David & Gavin Wright, 2005. "Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of “Our Ignorance”," Macroeconomics 0502023, EconWPA.
- Eric Bartelsman & Andrea Bassanini & John Haltiwanger & Ron Jarmin & Stefano Scarpetta & Thorsten Schank, 2002. "The Spread of ICT and Productivity Growth: Is Europe Really Lagging Behind in the New Economy?," Working Papers halshs-00289168, HAL.
- Eric Bartelsman & Andrea Bassanini & John Haltiwanger & Ron Jarmin & Stefano Scarpetta & Thorsten Schank, 2002. "The Spread of ICT and Productivity Growth: Is Europe Really Lagging Behind in the New Economy?," CEPN Working Papers halshs-00289168, HAL.
- Edge, Rochelle M. & Laubach, Thomas & Williams, John C., 2007.
"Learning and shifts in long-run productivity growth,"
Journal of Monetary Economics,
Elsevier, vol. 54(8), pages 2421-2438, November.
- Rochelle M. Edge & Thomas Laubach & John C. Williams, 2004. "Learning and shifts in long-run productivity growth," Finance and Economics Discussion Series 2004-21, Board of Governors of the Federal Reserve System (U.S.).
- Rochelle M. Edge & Thomas Laubach & John C. Williams, 2004. "Learning and shifts in long-run productivity growth," Working Paper Series 2004-04, Federal Reserve Bank of San Francisco.
- Jinghai Zheng & Angang Hu & Arne Bigsten, 2009. "Potential output in a rapidly developing economy: the case of China and a comparison with the United States and the European Union," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 317-342.
- Chellaraj, Gnanaraj & Maskus, Keith E. & Mattoo, Aaditya, 2005. "The contribution of skilled immigration and international graduate students to U.S. innovation," Policy Research Working Paper Series 3588, The World Bank.
- Harold Creusen & BjÃ¶rn Vroomen & Henry van der Wiel & Fred Kuypers, 2006. "Dutch retail trade on the rise? Relation between competition, innovation and productivity," CPB Document 137, CPB Netherlands Bureau for Economic Policy Analysis.
- Theodore M. Mitrakos & Georgios Th Simigiannis & Panagiota G. Tzamourani, 2005. "Indebtedness of Greek households: evidence from a survey," Economic Bulletin, Bank of Greece, Economic Research Department, issue 25, pages 13-35, AUgust.
- Dostie, Benoit & Trépanier, Mathieu, 2005.
"Returns to Computer Use and Organizational Practices of the Firm,"
IZA Discussion Papers
1541, Institute for the Study of Labor (IZA).
- Benoit Dostie & Mathieu Trépanier, 2004. "Return to Computer Use and Organizational Practices of the firm," Cahiers de recherche 04-06, HEC Montréal, Institut d'économie appliquée.
- Alessandro Rebucci & Nicoletta Batini & Pietro Cova & Massimiliano Pisani, 2009. "Global Imbalances: The Role of Non-TradableTotal Factor Productivity in Advanced Economies," IMF Working Papers 09/63, International Monetary Fund.
- Andrea Bonaccorsi & Lucia Piscitello & Cristina Rossi, 2005. "Explaining The Territorial Adoption Of New Technologies - A Spatial Econometric Approach," ERSA conference papers ersa05p92, European Regional Science Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.