Investment-specific and multifactor productivity in multi-sector open economies: data and analysis

Luca Guerrieri, Dale Henderson and Jinill Kim

No 828, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In the last half of the 1990s, labor productivity growth rose in the U.S. and fell almost everywhere in Europe. We document changes in both capital deepening and multifactor productivity (MFP) growth in both the information and communication technology (ICT) and non-ICT sectors. We view MFP growth in the ICT sector as investment-specific productivity (ISP) growth. We perform simulations suggested by the data using a two-country DGE model with traded and nontraded goods. For ISP, we consider level increases and persistent growth rate increases that are symmetric across countries and allow for costs of adjusting capital-labor ratios that are higher in one country because of structural differences. ISP increases generate investment booms unless adjustment costs are too high. For MFP, we consider persistent growth rate shocks that are asymmetric. When such MFP shocks affect only traded goods (as often assumed), movements in `international' variables are qualitatively similar to those in the data. However, when they also affect nontraded goods (as suggested by the data), movements in some of the variables are not. To obtain plausible results for the growth rate shocks, it is necessary to assume slow recognition.

Keywords: Industrial productivity; Labor productivity (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (10)

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Working Paper: Investment-Specific and Multifactor Productivity in Multi-Sector Open Economies:Data and Analysis (2005)
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