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What drives productivity growth?


  • Kevin J. Stiroh


Economists have long debated the best way to explain the sources of productivity growth. Neoclassical theory and "new growth" theory both regard investment—broadly defined to include purchases of tangible assets, human capital expenditures, and research and development efforts—as a critical source of productivity growth, but they differ in fundamental ways. Most notably, the neoclassical framework focuses on diminishing and internal returns to aggregate capital, while new growth models emphasize constant returns to capital that may yield external benefits. This article finds that despite their differences, both theories help explain productivity growth. The methodological tools of the neoclassical economists allow one to measure the rate of technical change, and the models of the new growth theorists provide an internal explanation for technical progress.

Suggested Citation

  • Kevin J. Stiroh, 2001. "What drives productivity growth?," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 37-59.
  • Handle: RePEc:fip:fednep:y:2001:i:mar:p:37-59:n:v.7no.1

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    References listed on IDEAS

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    Cited by:

    1. Karl Aiginger & Michael Landesmann, 2002. "Competitive Economic Performance: The European View," WIFO Working Papers 179, WIFO.
    2. Juan M. Gallego & Luis H. Gutiérrez & Sang H. Lee, 2015. "A firm-level analysis of ICT adoption in an emerging economy: evidence from the Colombian manufacturing industries," Industrial and Corporate Change, Oxford University Press, vol. 24(1), pages 191-221.
    3. Walter Buhr, 2009. "Infrastructure of the Market Economy," Volkswirtschaftliche Diskussionsbeiträge 132-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    4. Chen, Baoline & Zadrozny, Peter A., 2009. "Estimated U.S. manufacturing production capital and technology based on an estimated dynamic structural economic model," Journal of Economic Dynamics and Control, Elsevier, vol. 33(7), pages 1398-1418, July.
    5. Cette, Gilbert & Mairesse, Jacques & Kocoglu, Yusuf, 2005. "Effets de la diffusion des technologies de l’information sur la croissance potentielle et observée," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 203-230, Mars-Juin.
    6. Adriatik Hoxha, 2016. "The Wage-Price Setting Behavior: Comparing The Evidence from EU28 and EMU," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 61-102, June.
    7. Steelman, Aaron & Weinberg, John A., 2015. "A "New Normal"? The Prospects for Long-Term Growth in the United States," Annual Report, Federal Reserve Bank of Richmond, pages 4-27.
    8. Argandoña, Antonio, 2001. "Nueva economía y el crecimiento económico, La," IESE Research Papers D/437, IESE Business School.
    9. Angelo Reati, 2001. "Total factor productivity - a misleading concept," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(218), pages 313-332.
    10. Jaime Marquez, 2004. "Productivity, investment, and current accounts: Reassessing the evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(2), pages 282-301, June.
    11. Cette, Gilbert & Mairesse, Jacques & Kocoglu, Yusuf, 2005. "ICT diffusion and potential output growth," Economics Letters, Elsevier, vol. 87(2), pages 231-234, May.
    12. Meng-Chi Tang & Yih-Luan Chyi, 2008. "Legal Environments, Venture Capital, And Total Factor Productivity Growth Of Taiwanese Industry," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 468-481, July.
    13. Indjikian, Rouben & Siegel, Donald S., 2005. "The Impact of Investment in IT on Economic Performance: Implications for Developing Countries," World Development, Elsevier, vol. 33(5), pages 681-700, May.
    14. Jonathan McCarthy, 2004. "What investment patterns across equipment and industries tell us about the recent investment boom and bust," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(May).
    15. Gilbert Cette & Jacques Mairesse & Yusuf Kocoglu, 2004. "Diffusion des TIC et croissance potentielle," Revue d'économie politique, Dalloz, vol. 114(1), pages 77-97.
    16. Gilbert Cette & Christian Pfister, 2004. "Challenges of the “New Economy” for Monetary Policy," International Productivity Monitor, Centre for the Study of Living Standards, vol. 8, pages 27-36, Spring.
    17. Jaime R. Marquez, 2002. "Productivity, investment, and current accounts: reassessing the evidence," International Finance Discussion Papers 742, Board of Governors of the Federal Reserve System (U.S.).
    18. repec:erc:cypepr:v:11:y:2017:i:2:p:3-18 is not listed on IDEAS
    19. Dasgupta, Shyamasree & Roy, Joyashree, 2015. "Understanding technological progress and input price as drivers of energy demand in manufacturing industries in India," Energy Policy, Elsevier, vol. 83(C), pages 1-13.
    20. Adriatik Hoxha, 2016. "The Switch to Near-Rational Wage-Price Setting Behaviour: The Case of United Kingdom," EuroEconomica, Danubius University of Galati, issue 1(35), pages 127-148, may.
    21. Angelo Reati, 2001. "Total factor productivity - a misleading concept," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 54(218), pages 313-332.
    22. Carlos Esteban Posada P., 2013. "Los efectos macroeconómicos de la política fiscal y del cambio técnico: predicciones de un modelo de equilibrio general dinámico," DOCUMENTOS CEDE 011459, UNIVERSIDAD DE LOS ANDES-CEDE.


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