The mystery of TFP

Nicholas Oulton

Economic Statistics Centre of Excellence (ESCoE) Discussion Papers from Economic Statistics Centre of Excellence (ESCoE)

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.

Keywords: Total factor productivity; TFP; structural change; measurement error (search for similar items in EconPapers)
JEL-codes: E01 E24 O11 O47 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-eff, nep-gro, nep-mac and nep-tid
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The Mystery of TFP (2017)
Working Paper: The mystery of TFP (2017)
Journal Article: The Mystery of TFP (2016)
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