Trends in East European Factor Productivity

During the 1960s most of the countries of Eastern Europe experienced a visible retardation of economic growth. This paper supports the view of many Eastern as well as Western economists that the retardation was caused primarily by declining rates of growth of the total factor productivity. The rate of growth of the total factor productivity was estimated as a parameter of the macroeconomic production functions. Several other economists who estimated the production functions for East European countries obtained frequently results with low statistical significance because the time series were short and in addition suffered with the high degree of multicollinearity. In a previous papers (Kyn-Kyn ) we tried to demonstrate, that this obstacles can be overcome by estimating the production functions from the pooled cross-section and time series data. By doing so we received economically reasonable and statistically significant estimates of the capital and labor elasticities, and of the rate of technical change for Poland, Czechoslovakia, Hungary, Bulgaria and Rumania. Although the pooling eliminated the multicollinearity, it caused two other problems, namely heteroscedasticity and autocorrelation. In this paper we have applied a step-wise method with data transformation that practically eliminated these problems. Our results confirmed that the average annual rates of growth of the total factor productivity were very high (around 6 per cent) in the case of Czechoslovakia, Bulgaria and Rumania and somewhat lower, but still respectable (3 - 5 per cent) in the case of Poland and Hungary. It is, however, necessary to keep in mind that this estimates are not strictly comparable with the similar estimate for Western countries, because we have used the gross value of industrial production rather than GNP for measuring the output, and only the data for the nationalized part of industry. In the version of the model that allowed for changing rate of growth of total factor productivity over time we found that Czechoslovakia, Poland and Bulgaria experienced a quite considerably declining trend in the rate of change of the total factor productivity while such trend could not have been discovered in Hungary and Rumania.