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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. Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are Shocks to the Terms of Trade Shocks to Productivity?," NBER Working Papers 13111, National Bureau of Economic Research, Inc.
  2. W.E. Diewert & Catherine J. Morrison, 1985. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," NBER Working Papers 1564, National Bureau of Economic Research, Inc.
  3. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  4. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
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  6. MartinNeil Baily & Robert Z. Lawrence, 2001. "Do We Have a New E-conomy?," American Economic Review, American Economic Association, vol. 91(2), pages 308-312, May.
  7. Oliner, Stephen D. & Sichel, Daniel E., 2003. "Information technology and productivity: where are we now and where are we going?," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 477-503, July.
  8. William Nordhaus, 2005. "The Sources of the Productivity Rebound and the Manufacturing Employment Puzzle," NBER Working Papers 11354, National Bureau of Economic Research, Inc.
  9. Edward F. Blackburne III & Mark W. Frank, 2007. "Estimation of nonstationary heterogeneous panels," Stata Journal, StataCorp LP, vol. 7(2), pages 197-208, June.
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  12. Catherine L. Mann, 2003. "Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth," Policy Briefs PB03-11, Peterson Institute for International Economics.
  13. 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. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  17. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
  18. Kevin J. Stiroh & Dale W. Jorgenson, 1999. "Information Technology and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 109-115, May.
  19. 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.
  20. Timothy J. Kehoe & Kim Ruhl, 2008. "Data Appendix to "Are Shocks to the Terms of Trade Shocks to Productivity?"," Technical Appendices 07-40, Review of Economic Dynamics.
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  22. Susan Houseman, 2006. "Outsourcing, Offshoring, and Productivity Measurement in Manufacturing," Upjohn Working Papers and Journal Articles 06-130, W.E. Upjohn Institute for Employment Research.
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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. Brent Neiman & Gita Gopinath, 2011. "Trade Adjustment and Productivity in Large Crises," 2011 Meeting Papers 975, Society for Economic Dynamics.
  2. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 1005-27, December.
  3. David M. Byrne & Brian K. Kovak & Ryan Michaels, 2013. "Price and quality dispersion in an offshoring market: evidence from semiconductor production services," Finance and Economics Discussion Series 2013-06, Board of Governors of the Federal Reserve System (U.S.).
  4. 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.
  5. Catherine L. Mann, 2012. "Information Technology Intensity, Diffusion, and Job Creation," Working Papers 46, Brandeis University, Department of Economics and International Businesss School.
  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.).

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