Productivity and the Welfare of Nations

Basu, Susanto; Pascali, Luigi; Schiantarelli, Fabio; Servén, Luis

Productivity and the Welfare of Nations

Susanto Basu (), Luigi Pascali, Fabio Schiantarelli and Luis Servén
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Susanto Basu: Boston College, https://www.bc.edu/

Working Papers from CEMFI

Abstract: We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to 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. We use these results to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.

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: 2020-06
New Economics Papers: this item is included in nep-cwa, nep-eff, nep-gro and nep-mac
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2020_2010

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