DP16478 Productivity slowdown: reducing the measure of our ignorance

Author(s): Timo Boppart, Huiyu Li
Publication Date: August 2021
Keyword(s): Development accounting, Growth accounting, growth slowdown, Innovation, Measurement
JEL(s): O31, O47, O51
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16478

Growth accounting suggests that the bulk of the post-2004 slowdown in output growth in the U.S. is attributed to a residual called TFP. In this paper we provide a tractable accounting framework with firm heterogeneity to link this residual to innovations, markup dispersion, and potential measurement errors. Theories of creative destruction offer rich testable predictions of how the quality upgrading of products, the process efficiency of different firms, and markup dispersion in the market interact and therefore constitute a key approach to shed light on the slowdown in TFP growth. Surveying the literature on measurement, we conclude that measurement errors is unlikely to explain the recent deceleration in TFP growth.