Capital quality improvement and the sources of economic growth in the euro area

Abstract

"Europe's growth slowed in the 1990s, reinforcing the overall impression of a need to catch up with the US regarding standards of living. In reaction, EU leaders adopted the famous Lisbon Agenda in 2000. The Agenda is now under review, the aim being to determine why progress on its pro-growth goals has been unsatisfactory and what can be done about it. The first crucial step in this process is to understand the true sources of the European growth slowdown. Sources-of-growth calculations have always been imprecise, but evidence from the US suggests that 'quality upgrading'- especially in capital goods - has substantially worsened the precision problem since the 1990s. Unfortunately, quality adjusted sources-of-growth calculations, however, have not performed satisfactorily for Europe, so Europe's leaders are working with potentially misleading accounts of Europe's growth slowdown. Redressing this omission is the goal of this paper." Copyright � CEPR, CES, MSH, 2005.

Capital deepening and wage differentials: Germany versus US

“…This procedure allows us to apply separate depreciation rates and price deflators for five different categories of equipment goods, before we aggregate the series at the industry level. This way of constructing the stock of capital equipment implies a growth rate in the stock of capital equipment that is more than twice as high (see Sakellaris and Vijselaar, 2005, for similar results).…”

The contribution of Information and Communication Technology investments to Greek economic growth: An analytical growth accounting framework

“…The only way to solve this problem is the use of hedonic price indexes, which measure quality changes. Sakellaris and Vijselaar (2005) found that in the Euro area quality-adjusted equipment and software capital stock grew 3% faster per year, IT hardware grew 4% faster, while quality-adjusted output grew 0.46% faster per year.…”

“…Finally, we estimate much lower TFP growth rates for all models due to the increased contribution rates of capital and labor services. Timmer et al (2003) and Sakellaris and Vijselaar (2005) estimated the contribution of ICT investments to the European growth. These authors found that ICT investments were more significant in Greece than in the European Union for all periods.…”

“…NACE 30 includes office machinery and computers; on the other hand, BEA use different deflators for 'computers and peripheral equipment', 'photocopy and related equipment', and 'office and accounting equipment'. Unfortunately, the exact share of each asset in unknown, so we follow Sakellaris and Vijselaar (2005): by summing the US real investment growth rates of these three categories using the nominal investment shares as weights, we construct a volume index. We divide the nominal investment series by the real investment series to get the US deflator.…”

Stochastic Growth in the United States and Euro Area

“…To an extent, some of this difference may be due to errors in measurement, since the US National Income and Product Accounts are generally believed to do a better job than the Euro Area statistics aggregated by Fagan, Henry, and Mestre (2005) at accounting for quality change in capital goods. However, Sakellaris and Vijselaar (2005) present results of detailed calculations that suggest that when similar adjustments for quality improvements are made to data from both economies, the differences not only remain, but may become larger still. Furthermore, the comparisons drawn in Figure 1 are striking because they show that while the US and EA have both experienced extended departures from the type of balanced growth that appears in the traditional one‐sector stochastic growth model studied by King et al (1991), these departures have taken the two economies in totally different directions: in the US, real investment has grown faster than consumption, whereas in the EA, exactly the opposite has been true.…”