DP5501 Cyclical Productivity in Europe and the United States, Evaluating the Evidence on Returns to Scale and Input Utilization

Author(s): Robert Inklaar
Publication Date: February 2006
Keyword(s): cyclical productivity, input utilizations, instrumental variables, returns to scale
JEL(s): D24, E32, O47
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5501

This paper studies procyclical productivity growth at the industry level in the U.S. and in three European countries (France, Germany and the Netherlands). Industry-specific demand-side instruments are used to examine the prevalence of non-constant returns to scale and unmeasured input utilization. For the aggregate U.S. economy, unmeasured input utilization seems to explain procyclical productivity. However, this correction still leaves one in three U.S. industries with procyclical productivity. This failure of the model can also be seen in Europe and is mostly concentrated in services industries.