Unveiling the Hidden Impact of Urban Land Rents on Total Factor Productivity

Bas Bakker

No 2023/170, IMF Working Papers from International Monetary Fund

Abstract: This paper addresses the puzzling decline of Total Factor Productivity (TFP) levels in rapidly growing economies, such as Singapore, despite advancements in technology and high GDP per capita growth. The paper proposes that TFP growth is not negative; instead, standard growth decompositions have underestimated TFP growth by overestimating the contribution of capital, failing to account for the substantial part of capital income directed to urban land rents. This leads to an overestimation of changes in capital stock's contribution to growth and thereby an underestimation of TFP growth. A revised decomposition suggests that TFP growth in economies with high land rents and rapid capital stock growth, such as Singapore, has been considerably underestimated: TFP levels have not declined but increased rapidly.

Keywords: Total Factor Productivity; Economic Growth; Capital Stock; Land Rents; Growth Decomposition; Urban Economics; Population Density; Diminishing Returns to Scale; Technological Progress; Singapore; TFP level; re-estimating TFP; land rent; decline of total factor productivity; Capital income; Stocks; Land prices; Asia and Pacific (search for similar items in EconPapers)
Pages: 42
Date: 2023-08-25
New Economics Papers: this item is included in nep-eff, nep-gro, nep-his, nep-sea and nep-ure
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