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Needed: a theory of total factor productivity

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  • Edward C. Prescott

Abstract

This paper evaluates the argument that differences in physical and intangible capital can account for the large international income differences that characterize the world economy today. The finding is that they cannot. Savings rate differences are of minor importance. What is all-important is total factor productivity. In addition, the paper presents industry evidence that total factor productivities differ across countries and time for reasons other than differences in the publicly available stock of technical knowledge. These findings lead me to conclude a theory of TFP is needed. This theory must account for differences in TFP that arise for reasons other than growth in the stock of technical knowledge.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 242.

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Date of creation: 1997
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Handle: RePEc:fip:fedmsr:242

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Keywords: Income distribution ; Productivity;

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References

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  1. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
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  19. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  20. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  21. Krusell, P. & Rios-Rull, J.V., 1993. "Vested Interests in a Positive Theory of Stagnation and Growth," Papers 547, Stockholm - International Economic Studies.
  22. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
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