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Effects of Terms of Trade Gains and Tariff Changes on the Measurement of U.S. Productivity Growth

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  • Robert C. Feenstra
  • Benjamin R. Mandel
  • Marshall B. Reinsdorf
  • Matthew J. Slaughter

Abstract

Since 1995, growth in productivity in the United States appears to have accelerated dramatically. In this paper, we argue that part of this apparent speed-up actually represents gains in the terms of trade and tariff reductions, especially for information-technology products. We demonstrate how unmeasured gains in the terms of trade and declines in tariffs can cause conventionally measured growth in real output and productivity to be overstated. Building on the GDP function approach of Diewert and Morrison, we develop methods for measuring these effects. From 1995 through 2006, the average growth rates of our alternative price indexes for U.S. imports are 1.5% per year lower than the growth rate of price indexes calculated using official methods. Thus properly measured terms-of-trade gain can account for close to 0.2 percentage points per year, or about 20%, of the 1995-2006 apparent increase in productivity growth for the U.S. economy. Bias in the price indexes used to deflate domestic output is a question beyond the scope of this paper, but if upward bias were also present in those indexes, this could offset some of the effects of mismeasurement of gains in terms of trade.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15592.

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Date of creation: Dec 2009
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Handle: RePEc:nbr:nberwo:15592

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  1. Barbara M. Fraumeni & Michael J. Harper & Susan G. Powers, 2006. "An Integrated BEA/BLS Production Account: A First Step and Theoretical Considerations," NBER Chapters, in: A New Architecture for the U.S. National Accounts, pages 355-435 National Bureau of Economic Research, Inc.
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  16. Paul R. Bergin & Robert C. Feenstra, 2009. "Pass-Through of Exchange Rates and Competition between Floaters and Fixers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 35-70, 02.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Trade-Induced Bias in Productivity Measurement
    by Agent Continuum in Agent Continuum on 2010-01-12 14:00:20
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Cited by:
  1. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why have economic reforms in Mexico not generated growth?," Staff Report 453, Federal Reserve Bank of Minneapolis.
  2. Elizabeth Brainerd & Nidhiya Menon, 2013. "Seasonal Effects of Water Quality: The Hidden Costs of the Green Revolution to Infant and Child Health in India," Working Papers 64, Brandeis University, Department of Economics and International Businesss School.
  3. David Byrne & Brian K. Kovak & Ryan Michaels, 2013. "Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services," NBER Working Papers 19637, National Bureau of Economic Research, Inc.
  4. Brent Neiman & Gita Gopinath, 2011. "Trade Adjustment and Productivity in Large Crises," 2011 Meeting Papers 975, Society for Economic Dynamics.
  5. Robert C. Feenstra & Robert E. Lipsey & Lee G. Branstetter & C. Fritz Foley & James Harrigan & J. Bradford Jensen & Lori Kletzer & Catherine Mann & Peter K. Schott & Greg C. Wright, 2010. "Report on the State of Available Data for the Study of International Trade and Foreign Direct Investment," NBER Working Papers 16254, National Bureau of Economic Research, Inc.
  6. Susan Houseman & Christopher Kurz & Paul Lengermann & Benjamin Mandel, 2010. "Offshoring bias in U.S. manufacturing: implications for productivity and value added," International Finance Discussion Papers 1007, Board of Governors of the Federal Reserve System (U.S.).
  7. Llosa, Luis-Gonzalo, 2013. "How Do Terms of Trade Affect Productivity? The Role of Monopolistic Output Markets," Working Papers 2013-007, Banco Central de Reserva del PerĂº.
  8. Catherine L. Mann, 2012. "Information Technology Intensity, Diffusion, and Job Creation," Working Papers 46, Brandeis University, Department of Economics and International Businesss School.

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