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

No 17971, NBER Working Papers from National Bureau of Economic Research, Inc

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) 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 product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. 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, and will typically sum to less than one. These results are used 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.

JEL-codes: D24 D90 E20 O47 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-eff
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Published as Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2022. "Productivity and the Welfare of Nations," Journal of the European Economic Association, vol 20(4), pages 1647-1682.

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