Productivity and the Welfare of Nations

Susanto Basu (), Luigi Pascali, Fabio Schiantarelli and Luis Servén

No 793, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We show how to relate the welfare of a country's infinitely-lived representative consumer to observable aggregate data. To a first order, welfare is summarized by total factor productivity and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of market competition. It applies to open economies as well, if total factor productivity is constructed using domestic absorption, instead of gross domestic product, as the measure of output. It also requires that total factor productivity be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates and they will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of developed countries with high-quality total factor productivity and capital data. Under realistic scenarios, the U.K. and Spain had the highest growth rates of welfare during the sample period 1985-2005, but the U.S. had the highest level of welfare.

Keywords: Productivity; Welfare; TFP; Solow Residual (search for similar items in EconPapers)
JEL-codes: D24 D90 E20 O47 (search for similar items in EconPapers)
Date: 2012-03-28, Revised 2016-02-18
New Economics Papers: this item is included in nep-eff and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Productivity and the Welfare of Nations (2022)
Working Paper: Productivity and the Welfare of Nations (2020)
Working Paper: Productivity and the Welfare of Nations (2020)
Working Paper: Productivity and the Welfare of Nations (2014)
Working Paper: Productivity and the Welfare of Nations (2013)
Working Paper: Productivity and the Welfare of Nations (2013)
Working Paper: Productivity and the Welfare of Nations (2012)
Working Paper: Productivity and the Welfare of Nations (2012)
Working Paper: Productivity and the Welfare of Nations (2012)
Working Paper: Productivity and the welfare of nations (2012)
Working Paper: Productivity and the welfare of nations (2012)
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