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The Mystery of TFP

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  • Nicholas Oulton

    () (Centre for Macroeconomics (CFM)
    National Institute of Economic and Social Research (NIESR))

Abstract

I analyse TFP growth at the sectoral and aggregate level, using data for 10 industry groups covering the market sector for 18 countries over the period 1970-2007 drawn from the EU KLEMS dataset. TFP growth displays persistence at the aggregate level but not at the industry level, suggesting industry outputs are measured with error. In all countries resources have been shifting away from industries with high TFP growth towards industries with low TFP growth. Nevertheless I find that structural change (as measured by changes in value added shares) has favoured growth in most countries. Errors in measuring capital or in measuring the elasticity of output with respect to capital are unlikely to substantially reduce the role of TFP in explaining growth. The pattern of growth in these 18 countries is more consistent with an underlying two-sector model than with the one-sector (Solow) model. Standard theory suggests that TFP growth induces capital accumulation, at least in the long run. This is not the case with the raw EU KLEMS data used here. But standard theory finds some support when the data are smoothed to remove cyclical effects.

Suggested Citation

  • Nicholas Oulton, 2017. "The Mystery of TFP," Discussion Papers 1706, Centre for Macroeconomics (CFM).
  • Handle: RePEc:cfm:wpaper:1706
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    Cited by:

    1. Nicholas Oulton, 2016. "The Mystery of TFP," International Productivity Monitor, Centre for the Study of Living Standards, vol. 31, pages 68-87, Fall.
    2. Oulton, Nicholas & Rincon-Aznar, Ana & Samek, Lea & Srinivasan, Sylaja, 2018. "Double deflation: theory and practice," LSE Research Online Documents on Economics 100927, London School of Economics and Political Science, LSE Library.
    3. Bill Martin & Centre for Business Research, 2018. "A Comment on Oulton, "The UK Productivity Puzzle: Does Arthur Lewis Hold the Key?"," Working Papers wp498, Centre for Business Research, University of Cambridge.
    4. Nicholas Oulton & Ana Rincon-Aznar & Lea Samek & Sylaja Srinivasan, 2018. "Double deflation: theory and practice," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2018-17, Economic Statistics Centre of Excellence (ESCoE).

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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