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Returns to Scale, Technical Progress and Total Factor Productivity Growth in New Zealand Industries

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  • Kevin J Fox

    ()
    (School of Economics, & CAER, University of New South Wales)

Abstract

This paper reviews and applies some recently proposed methods for separating total factor productivity (TFP) growth into contributions from technical progress and returns to scale, allowing for imperfectly competitive markets. The methods are applied to New Zealand data, using a recently available dataset on nine market-sector industries and the aggregate market sector, 1988-2002. The findings suggest that there has been little contribution from technical progress to TFP growth, but increasing returns to scale may have played a substantial role. However, the results are not statistically satisfactory for several industries, and are quite sensitive to the model used. This highlights the need for more work on both data and analysis if a better understanding is to be had of New Zealand’s productivity performance.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2005/05-04/twp05-04.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 05/04.

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Length: 26 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:nzt:nztwps:05/04

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Keywords: Returns to scale; technical progress; monopolistic markups;

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References

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  1. Guo, Jang-Ting, 2004. "Increasing returns, capital utilization, and the effects of government spending," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1059-1078, March.
  2. Kevin Fox & Ulrich Kohli & Ronald Warren, 2003. "Sources of growth and output gaps in New Zealand: New methods and evidence," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(1), pages 67-92.
  3. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, vol. 46(6), pages 963-991, June.
  4. Diewert, W. Erwin & Fox, Kevin J., 2008. "On the estimation of returns to scale, technical progress and monopolistic markups," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 174-193, July.
  5. Diewert, W Erwin, 1983. " The Measurement of Waste within the Production Sector of an Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(2), pages 159-79.
  6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  7. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-45, December.
  8. Hintermaier, Thomas, 2003. "On the minimum degree of returns to scale in sunspot models of the business cycle," Journal of Economic Theory, Elsevier, vol. 110(2), pages 400-409, June.
  9. Fox, Kevin J & Kohli, Ulrich & Warren, Ronald S, Jr, 2002. "Accounting for Growth and Output Gaps: Evidence from New Zealand," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 312-26, September.
  10. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  11. Charles I. Jones, 2004. "Growth and Ideas," NBER Working Papers 10767, National Bureau of Economic Research, Inc.
  12. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  13. Kohli, Ulrich, 1993. "A Symmetric Normalized Quadratic GNP Function and the U.S. Demand for Imports and Supply of Exports," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 243-55, February.
  14. Morrison, Catherine J, 1992. "Unraveling the Productivity Growth Slowdown in the United States, Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markups," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 381-93, August.
  15. Nathan McLellan, 2004. "Measuring Productivity using the Index Number Approach: An Introduction," Treasury Working Paper Series 04/05, New Zealand Treasury.
  16. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
  17. Peter Mawson & Kenneth I Carlaw & Nathan McLellan, 2003. "Productivity Measurement: Alternative Approaches and Estimates," Treasury Working Paper Series 03/12, New Zealand Treasury.
  18. White, Kenneth J, 1978. "A General Computer Program for Econometric Methods-Shazam," Econometrica, Econometric Society, vol. 46(1), pages 239-40, January.
  19. Weil, Philippe, 1989. "Increasing Returns and Animal Spirits," American Economic Review, American Economic Association, vol. 79(4), pages 889-94, September.
  20. Beaudry, Paul & Devereux, Michael B., 1995. "Money and the real exchange rate with sticky prices and increasing returns," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 55-101, December.
  21. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
  22. Erwin Diewert & Denis Lawrence, 1999. "Measuring New Zealand’s Productivity," Treasury Working Paper Series 99/05, New Zealand Treasury.
  23. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  24. Catherine J. Morrison & Donald Siegel, 1997. "External Capital Factors And Increasing Returns In U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 647-654, November.
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