General Equilibrium Analysis of International TFP Growth Rates

Abstract

The paper presents a study of the total factor productivity (TFP) performance among developed countries between 1985 and 1990. The analysis includes the three large economies: the US, Japan and Europe. A general equilibrium model of these economies is used to estimate TFP growth at the sectoral and at the aggregate levels. The model is based on the fundamentals of the economies and employs only data on input-output flows, factor inputs across sectors, consumption and trade patterns and endowments. Prices are endogenous in the model. They are obtained as shadow prices from the model's linear program and then used to measure TFP growth and decompose it in a technical change effect, a demand effect and a terms-of-trade effect. The technical change effect is highly correlated with the conventional Solow residual measure. This result lends support to the standard measure of technological change.Total Factor Productivity Growth, Input-OUTPUT Tables, Equilibrium,

Determinants and measurement of smart growth: evidence from Poland

“…On the basis of Solow's model, the size of TFP for both economies as well as individual industries was estimated. In parallel, the methods of measuring the share of TFP in relation to the share of other inputs, which resulted in a reduction of Solow's original estimates of TFP share in the growth, were modified and refined (Jorgenson & Griliches, 1967;Islam, 1999;Shestalova, 2001). And so, for example, in the period of 1960-95, close to 50% Japanese output growth and more then 40% German and Italian output growth were determined by TFP growth (Helpman, 2004, p. 24).…”

Alternative Measures of Total Factor Productivity Growth

“…we may substitute b (19). The b z j -terms cancel in view of the …nancial balance (18), and we obtain the equivalent expression for total factor productivity growth as a weighted sum of the reductions in technical coe¢ cients:…”

The Solow residual, Domar aggregation, and inefficiency: a synthesis of TFP measures

“…An extension of the above model to the case of an open economy allows us to incorporate the effect of change in the terms-of-trade. This effect has been considered by ten Raa andMohnen (2001, 2002) for the case of a small open economy, and by Shestalova (2001) for the case three large open economies. See also Diewert and Morrison (1986) on the effect of international trade on productivity.…”

“…The obtained measure of TFP is based on the fundamentals of the economy, namely technology and preferences. The model draws from ten Raa andMohnen (2001, 2002) and Shestalova (2001), but replaces their utility based output distance function by the input distance function used in this paper and, for simplicity, takes the one-country closed economy variant. Employing the distance function program (11) and combining Propositions 1 and 3, we obtain the next proposition, which allows technical inefficiency in the I-O model and shows how to measure it as well as technical progress.…”