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Productivity, investment, and current accounts: reassessing the evidence

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  • Jaime Marquez
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    Abstract

    The most widely accepted explanation for the inverse association between private investments and current accounts [Glick and Rogoff, 1995] rests on data for manufactures through 1990. Is this consensus robust to revisions to the national accounts and the expansion of information technologies since 1990? To address this question I replicate their results and I find that post 1990 developments eliminate the support for such a conclusion. I also implement alternative formulations and find, again, a lack of empirical support for their findings. Thus I examine the role of measurement errors and focus on the treatment of the manufacturing sector as representative of the whole economy and the exclusion of the contribution of capital when measuring productivity. Correcting these two measurement errors restores to Glick and Rogoff's conclusion its original strength.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 742.

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    Date of creation: 2002
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    Handle: RePEc:fip:fedgif:742

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    Keywords: Productivity ; International finance ; Investments;

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    1. Reuven Glick & Kenneth Rogoff, 1993. "Global Versus Country-Specific Productivity Shocks and the Current Acocount," Boston University - Institute for Economic Development 31, Boston University, Institute for Economic Development.
    2. Barro, R.J. & Martin, X.S., 1990. "World Real Interest Rates," RCER Working Papers 227, University of Rochester - Center for Economic Research (RCER).
      • Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
    3. Stephen D. Oliner & Daniel E. Sichel, 2000. "The resurgence of growth in the late 1990s: is information technology the story?," Finance and Economics Discussion Series 2000-20, Board of Governors of the Federal Reserve System (U.S.).
    4. Christopher Gust & Jaime Marquez, 2000. "Productivity developments abroad," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 665-681.
    5. Susanto Basu & John Fernald, 2000. "Why Is Productivity Procyclical? Why Do We Care?," NBER Working Papers 7940, National Bureau of Economic Research, Inc.
    6. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
    7. Kevin J. Stiroh, 2001. "What drives productivity growth?," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 37-59.
    8. Iscan, Talan B., 2000. "The terms of trade, productivity growth and the current account," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 587-611, June.
    9. Hall, Robert E., 1987. "Productivity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 421-444, January.
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