Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/1312.html
   My bibliography  Save this paper

Productivity and the welfare of nations

Author

Listed:
Abstract
We show that the welfare of a representative consumer can be related to observable aggregate data. To a first order, the change in welfare is summarized by (the present value of) the Solow productivity residual and by the growth rate of the capital stock per capita. We also show that productivity and the capital stock suffice to calculate differences in welfare across countries, with both variables computed as log level deviations from a reference country. These results hold for arbitrary production technology, regardless of the degree of product market competition, and apply to open economies as well if TFP is constructed using absorption rather than GDP as the measure of output. They require that TFP be constructed using prices and quantities as perceived by consumers. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. We apply these results to calculate welfare gaps and growth rates in a sample of developed countries for which high-quality TFP and capital data are available. We find that under realistic scenarios the United Kingdom and Spain had the highest growth rates of welfare over our sample period of 1985-2005, but the United States had the highest level of welfare.

Suggested Citation

  • Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the welfare of nations," Economics Working Papers 1312, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1312
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/1312.pdf
    File Function: Whole Paper
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2022. "Productivity and the Welfare of Nations," Journal of the European Economic Association, European Economic Association, vol. 20(4), pages 1647-1682.
    3. Mulligan Casey B, 2001. "Aggregate Implications of Indivisible Labor," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-35, April.
    4. David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
    5. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    6. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The Case of the Missing Productivity Growth: Or, Does Information Technology Explain why Productivity Accelerated in the US but not the UK?," NBER Working Papers 10010, National Bureau of Economic Research, Inc.
    7. S.K. Bhutani, 2009. "China and India," India Quarterly: A Journal of International Affairs, , vol. 65(4), pages 383-391, October.
    8. Serven, Luis, 1995. "Capital goods imports, the real exchange rate and the current account," Journal of International Economics, Elsevier, vol. 39(1-2), pages 79-101, August.
    9. Guido Sandleris & Mark L. J. Wright, 2014. "The Costs of Financial Crises: Resource Misallocation, Productivity, and Welfare in the 2001 Argentine Crisis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 87-127, January.
    10. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, vol. 106(437), pages 1045-1055, July.
    11. William D. Nordhaus & James Tobin, 1973. "Is Growth Obsolete?," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 509-564, National Bureau of Economic Research, Inc.
    12. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
    13. Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajona, 2008. "Trade liberalization growth and productivity," 2008 Meeting Papers 789, Society for Economic Dynamics.
    14. Charles I. Jones & Peter J. Klenow, 2016. "Beyond GDP? Welfare across Countries and Time," American Economic Review, American Economic Association, vol. 106(9), pages 2426-2457, September.
    15. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    16. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2009. "Productivity, Welfare and Reallocation: Theory and Firm Level Evidence," Boston College Working Papers in Economics 728, Boston College Department of Economics, revised 12 Jul 2010.
    17. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, vol. 46(6), pages 963-991, June.
    18. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    19. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
    20. Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
    21. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    22. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    23. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    24. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    25. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 451-488, May.
    26. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140, National Bureau of Economic Research, Inc.
    27. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages 374-403, June.
    28. Antonio Ladrón-de-Guevara & Salvador Ortigueira & Manuel S. Santos, 1999. "A Two-Sector Model of Endogenous Growth with Leisure," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(3), pages 609-631.
    29. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    30. Miguel-Angel Martín & Agustín Herranz, 2004. "Human capital and economic growth in Spanish regions," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(4), pages 257-264, November.
    31. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    32. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
    33. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    34. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    35. Isabel Correia & Emmanuel Farhi & Juan Pablo Nicolini & Pedro Teles, 2013. "Unconventional Fiscal Policy at the Zero Bound," American Economic Review, American Economic Association, vol. 103(4), pages 1172-1211, June.
    36. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    37. Alexander Bick & Nicola Fuchs-Schündeln & David Lagakos, 2018. "How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications," American Economic Review, American Economic Association, vol. 108(1), pages 170-199, January.
    38. Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(3), pages 511-518.
    39. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-1025, November.
    40. Charles R. Hulten & Paul Schreyer, 2010. "GDP, Technical Change, and the Measurement of Net Income: the Weitzman Model Revisited," NBER Working Papers 16010, National Bureau of Economic Research, Inc.
    41. Peter J. Lloyd, 1977. "Two-Stage Expenditure Minimization and some Welfare Applications," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 91(4), pages 531-554.
    42. Mino, Kazuo, 2004. "Weitzman's rule with market distortions," Japan and the World Economy, Elsevier, vol. 16(3), pages 307-329, August.
    43. Quah, Danny, 1996. "Twin peaks : growth and convergence in models of distribution dynamics," LSE Research Online Documents on Economics 2278, London School of Economics and Political Science, LSE Library.
    44. repec:bla:scandj:v:96:y:1994:i:2:p:257-65 is not listed on IDEAS
    45. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    46. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    47. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 1005-1027, December.
    48. Thomas Aronsson & Karl-Gustaf Löfgren, 1995. "National product related welfare measures in the presence of technological change: Externalities and uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(4), pages 321-332, June.
    49. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515.
    50. Kremer, Michael & Onatski, Alexei & Stock, James, 2001. "Searching for prosperity," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 275-303, December.
    51. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    52. J. A. Sefton & M. R. Weale, 2006. "The Concept of Income in a General Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 219-249.
    53. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Total Factor Productivity as a Measure of Welfare
      by dvollrath in The Growth Economics Blog on 2014-09-04 02:02:47

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nicholas Oulton, 2022. "The Productivity-Welfare Linkage: A Decomposition," Discussion Papers 2205, Centre for Macroeconomics (CFM).
    2. Reitze Gouma & Robert Inklaar, 2023. "Capital Measurement and Productivity Growth Across International Databases," International Productivity Monitor, Centre for the Study of Living Standards, vol. 44, pages 67-88, Fall.
    3. Andrés Rodríguez-Pose & Vassilis Tselios, 2019. "Well-being, Political Decentralisation and Governance Quality in Europe," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 20(1), pages 69-93, January.
    4. David Dollar & Tatjana Kleineberg & Aart Kraay, 2015. "Growth, inequality and social welfare: cross-country evidence," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(82), pages 335-377.
    5. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers 621, Barcelona School of Economics.
    6. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2022. "Productivity and the Welfare of Nations," Journal of the European Economic Association, European Economic Association, vol. 20(4), pages 1647-1682.
    7. Nicholas Oulton, 2012. "Hooray for GDP!," CentrePiece - The magazine for economic performance 383, Centre for Economic Performance, LSE.
    8. David R Baqaee & Ariel Burstein, 2023. "Welfare and Output With Income Effects and Taste Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(2), pages 769-834.
    9. Ezra Oberfield, 2013. "Productivity and Misallocation During a Crisis: Evidence from the Chilean Crisis of 1982," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 100-119, January.
    10. Cheng,Wenyin & Fukao,Kyoji & Meng,Bo, 2024. "Global Value Chains: Unveiling the Nexus of Productivity and Welfare," IDE Discussion Papers 933, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Monacelli, Tommaso & Sala, Luca & Siena, Daniele, 2023. "Real interest rates and productivity in small open economies," Journal of International Economics, Elsevier, vol. 142(C).
    12. Ville Kaitila, 2016. "GDP growth in Russia: different capital stock series and the terms of trade," Post-Communist Economies, Taylor & Francis Journals, vol. 28(2), pages 129-145, April.
    13. Eduardo Davila & Andreas Schaab, 2024. "Welfare Accounting," Cowles Foundation Discussion Papers 2412, Cowles Foundation for Research in Economics, Yale University.
    14. Guido Sandleris & Mark L. J. Wright, 2014. "The Costs of Financial Crises: Resource Misallocation, Productivity, and Welfare in the 2001 Argentine Crisis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 87-127, January.
    15. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers 621, Barcelona Graduate School of Economics.
    16. Hyytinen, Ari & Maliranta, Mika, 2013. "Firm lifecycles and evolution of industry productivity," Research Policy, Elsevier, vol. 42(5), pages 1080-1098.
    17. Michael Peneder & Christian Rammer, 2018. "Measuring Competitiveness," WIFO Studies, WIFO, number 60838, April.
    18. Gabriel Felbermayr & Benjamin Jung & Gabriel J. Felbermayr, 2015. "Market Size and TFP in New New Trade Theory," CESifo Working Paper Series 5583, CESifo.
    19. Abdul A. Erumban, 2023. "The Falling Productivity in West Asian Arab Countries Since the 1980s: Causes, Consequences, and Cures," International Productivity Monitor, Centre for the Study of Living Standards, vol. 44, pages 89-119, Fall.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers 621, Barcelona Graduate School of Economics.
    2. Xavier Sala-i-Martin, 2002. "15 Years of New Growth Economics : What Have we Learnt?," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(2), pages 5-15, August.
    3. Herrmann, Sabine & Winkler, Adalbert, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 100-123, August.
    4. Long, N.V. & Wong, K.Y., 1996. "Endogenous Growth and International Trade: A Survey," Working Papers 96-07, University of Washington, Department of Economics.
    5. Nazrul Islam, 2003. "What have We Learnt from the Convergence Debate?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 309-362, July.
    6. Jerzmanowski, Michal & Tamura, Robert, 2019. "Directed technological change & cross-country income differences: A quantitative analysis," Journal of Development Economics, Elsevier, vol. 141(C).
    7. Jones, C.I., 2016. "The Facts of Economic Growth," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 3-69, Elsevier.
    8. Etro, Federico, 2017. "Research in economics and macroeconomics," Research in Economics, Elsevier, vol. 71(3), pages 373-383.
    9. Goñi, Edwin & Maloney, William F., 2017. "Why don’t poor countries do R&D? Varying rates of factor returns across the development process," European Economic Review, Elsevier, vol. 94(C), pages 126-147.
    10. Iancu, Aurel, 2009. "Real Economic Convergence," Working Papers of National Institute for Economic Research 090104, Institutul National de Cercetari Economice (INCE).
    11. Adriana Di Liberto, 2007. "Convergence and Divergence in Neoclassical Growth Models with Human Capital," Economia politica, Società editrice il Mulino, issue 2, pages 289-322.
    12. Bayraktar-Sağlam, Bahar & Yetkiner, Hakan, 2014. "A Romerian contribution to the empirics of economic growth," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 257-272.
    13. Guido Sandleris & Mark L. J. Wright, 2014. "The Costs of Financial Crises: Resource Misallocation, Productivity, and Welfare in the 2001 Argentine Crisis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 87-127, January.
    14. David E. Bloom & Alex Khoury & Vadim Kufenko & Klaus Prettner, 2021. "Spurring Economic Growth through Human Development: Research Results and Guidance for Policymakers," Population and Development Review, The Population Council, Inc., vol. 47(2), pages 377-409, June.
    15. Ulaşan, Bülent, 2012. "Cross-country growth empirics and model uncertainty: An overview," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-69.
    16. Young Eun Kim & Norman V. Loayza, 2019. "Productivity Growth: Patterns and Determinants across the World," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 42(84), pages 36-93.
    17. Hulten, Charles R., 2010. "Growth Accounting," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 987-1031, Elsevier.
    18. Han, Xuehui & Wei, Shang-Jin, 2017. "Re-examining the middle-income trap hypothesis (MITH): What to reject and what to revive?," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 41-61.
    19. Fulvio Castellacci, 2007. "Evolutionary And New Growth Theories. Are They Converging?," Journal of Economic Surveys, Wiley Blackwell, vol. 21(3), pages 585-627, July.
    20. Hafner, Kurt A. & Mayer-Foulkes, David, 2013. "Fertility, economic growth, and human development causal determinants of the developed lifestyle," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 107-120.

    More about this item

    Keywords

    Productivity; Welfare; TFP; Solow Residual.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:1312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.upf.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.