Productivity and the Welfare of Nations

Susanto Basu

No 787, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: We show that the welfare of a countrys 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.

Date: 2014
New Economics Papers: this item is included in nep-dge, nep-eff, nep-gro and nep-pbe
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Related works:
Working Paper: Productivity and the Welfare of Nations (2016)
Working Paper: Productivity and the Welfare of Nations (2015)
Working Paper: Productivity and the Welfare of Nations (2012)
Working Paper: Productivity and the Welfare of Nations (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:787

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