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Measuring Productivity and Absorptive Capacity Evolution in OECD Economies

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  • De Visscher, Stef
  • Eberhardt, Markus
  • Everaert, Gerdie

Abstract

We develop a new way to estimate cross-country production functions which allows us to parametrize unobserved non-factor inputs (total factor productivity) as a global technology process combined with country-specific time-varying absorptive capacity. The advantage of our approach is that we do not need to adopt proxies for absorptive capacity such as investments in research and development (R&D) or human capital, or specify explicit channels through which global technology can transfer to individual countries, such as trade, FDI or migration: we provide an endogenously-created index for relative absorptive capacity which is easy to interpret and encompasses potential proxies and channels. Our implementation adopts an unobserved component model and uses a Bayesian Markov Chain Monte Carlo (MCMC) algorithm to obtain posterior estimates for all model parameters. This contribution to empirical methodology allows researchers to employ widely-available data for factor inputs (capital, labor) and GDP or value-added in order to arrive at policy-relevant insights for industrial and innovation policy. Applying our methodology to a panel of 31 advanced economies we chart the dynamic evolution of global TFP and country-specific absorptive capacity and then demonstrate the close relationship between our estimates and salient indicators of growth-enhancing economic policy.

Suggested Citation

  • De Visscher, Stef & Eberhardt, Markus & Everaert, Gerdie, 2017. "Measuring Productivity and Absorptive Capacity Evolution in OECD Economies," CEPR Discussion Papers 12261, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12261
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    More about this item

    Keywords

    absorptive capacity; common factor model; MCMC; time-varying parameters; total factor productivity; unobserved component model;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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