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How Important is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries?

Konstantins Benkovskis (), Ludmila Fadejeva, Robert Stehrer and Julia Woerz ()

No 2012/05, Working Papers from Latvijas Banka

Abstract: The evolution of total factor productivity (TFP) is a key determinant of long-run economic growth of a country. In this paper we analyse the contributions from technological change at the industry level to an economy's aggregate growth performance. Our derivation of total TFP growth entails three major improvements over the traditional Solow residual approach. First, we allow for non-constant returns to scale as well as changes in the utilisation of input factors in our estimation of industry TFP growth. Second, we use a novel approach to aggregate TFP from industry level to macro level, which incorporates both direct and indirect effects through intermediate linkages within an economy. Third, we take account of open economy characteristics by assigning an explicit role to terms-of-trade shocks. Our calculations for the sample of 10 Eastern European EU Member States over the time period from 1995 to 2009 are based on the newly available World Input-Output Database (WIOD).

Keywords: total factor productivity; terms of trade; utilisation; input-output table; Central; Eastern and Southeastern Europe (search for similar items in EconPapers)
JEL-codes: C23 D24 E23 O47 (search for similar items in EconPapers)
Date: 2012-12-20
New Economics Papers: this item is included in nep-eff, nep-eur and nep-tra
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Journal Article: How Important Is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries? (2013) Downloads
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