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Aggregate Productivity and the Productivity of Aggregates

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Author Info
Susanto Basu
John G. Fernald

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Abstract

Explanations of procyclical productivity play a key role in a variety of business-cycle models. Most of these models, however, explain this procyclicality within a representative-firm paradigm. This procedure is misleading. We decompose aggregate productivity changes into several terms, each of which has an economic interpretation. However, many of these terms measure composition effects such as reallocations of inputs across productive units. We apply this decomposition to U.S. data by aggregating from roughly the two-digit level to the private economy. We find that the compositional terms are significantly procyclical. Controlling for these terms virtually eliminates the evidence for increasing returns to scale, and implies that input growth is uncorrelated with technology change.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5382.

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Date of creation: Dec 1995
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Handle: RePEc:nbr:nberwo:5382

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Find related papers by JEL classification:
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity

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(explanations, 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.)

  1. Sharon G. Harrison, 2003. "Returns to Scale and Externalities in the Consumption and Investment Sectors," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 963-976, October. [Downloadable!] (restricted)
  2. J. Bradford DeLong & Robert J. Waldmann, 1997. "Interpreting procyclical productivity: evidence from a cross-nation cross-industry panel," Economic Review, Federal Reserve Bank of San Francisco, pages 33-52. [Downloadable!]
  3. repec:bep:mactop:v:3:y:2003:i:1:p:1074-1074 is not listed on IDEAS
  4. Graciela Chichilnisky & Olga Gorbachev, 2004. "Volatility in the knowledge economy," Discussion Papers 0304-13, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  5. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers 9903, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
  6. Yongsung Chang & Joao Gomes & Frank Schorfheide, 2002. "Learning by Doing as a Propagation Mechanism," Macroeconomics 0204002, EconWPA. [Downloadable!]
    Other versions:
  7. Kiyohiko G. Nishimura & Masato Shirai, 2000. "Fixed Costs, Imperfect Competition and Bias in Technology Measurement: Japan and the United States," CIRJE F-Series CIRJE-F-97, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  8. Djankov, Simeon & Hoekman, Bernard, 1999. "Foreign investment and productivity growth in Czech enterprises," Policy Research Working Paper Series 2115, The World Bank. [Downloadable!]
    Other versions:
  9. Paul J. Zak, 1999. "Kaleckian Lags in General Equilibrium," Review of Political Economy, Taylor and Francis Journals, vol. 11(3), pages 321-330, July. [Downloadable!] (restricted)
  10. Mankiw, N Gregory & Reis, Ricardo, 2006. "Pervasive Stickiness (Expanded Version)," CEPR Discussion Papers 5521, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Raphael Bergoeing & Andrea Repetto, 2006. "Micro Efficiency and Aggregate Growth in Chile," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 169-192. [Downloadable!]
    Other versions:
  12. Altug, Sumru G. & Filiztekin, Alpay, 1999. "Estimates of the Returns to Scale for US Manufacturing," CEPR Discussion Papers 2121, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Diego Comin, 2002. "Comments on James Bessen's "Technology Adoption Costs and Productivity Growth: The 70's as a Technology Transition"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 470-476, April. [Downloadable!] (restricted)
  14. Raphael Bergoeing & Andrés Hernando & Andrea Repetto, 2003. "Idiosyncratic Productivity Shocks and Plant-Level Heterogeneity," Documentos de Trabajo 173, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  15. Joze P. Damijan & Mark Knell & Boris Majcen & Matija Rojec, 2003. "Technology Transfer through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?," William Davidson Institute Working Papers Series 549, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  16. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society. [Downloadable!]
  17. Saso Polanec, 2004. "On the Evolution of Size and Productivity in Transition: Evidence from Slovenian Manufacturing Firms," LICOS Discussion Papers 15404, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  18. N. Gregory Mankiw & Ricardo Reis, 2006. "Pervasive Stickiness," American Economic Review, American Economic Association, vol. 96(2), pages 164-169, May. [Downloadable!]
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  19. Luca Dedola & Francesco Lippi, 2000. "The monetary transmission mechanism; evidence from the industries of five OECD countries," Temi di discussione (Economic working papers) 389, Bank of Italy, Economic Research Department. [Downloadable!]
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