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Productivity
Growth
International
comparisons
In
comparisons of productivity growth rates, both across time and among
countries, attention is often focused on the manufacturing sector,
partly because of its importance for international trade. Unfortunately,
comparisons based on actual productivity data are often unreliable,
mainly because they fail to extract the cyclical component of
productivity changes.
In Discussion Paper No. 410, Julia Darby and Research Fellow Simon
Wren-Lewis adjust for these cyclical effects and also for the impact
of factor substitution. They estimate employment equations that allow
for both inertia in labour force adjustment and relative price effects,
in which technical progress, or more generally underlying productivity,
is captured by a trend term. They estimate a proxy for underlying
productivity and then estimate trend productivity growth rates for each
of the G7 countries over the last twenty years.
Their results suggest that most of the G7 countries suffered a decline
in underlying productivity growth in the 1970s, but its extent and
precise timing differed considerably. Declines were greatest for Japan,
France and Germany, where the annual growth rate fell by 2-3%. The
decline in Canada was a little over 1% and in the US only about 0.5%. In
Italy no significant decline in trend growth appears to have occurred.
The results for the UK depend critically on whether relative price
effects are included in the estimated employment equation. If they are
not included, underlying productivity growth falls substantially in the
late 1970s, but more than recovers in the 1980s. Allowing for factor
substitution, however, smoothes out these fluctuations. These
developments have led to large changes in the `league table' of
comparative growth rates among countries over the period.
The current relative positions among the European countries are broadly
consistent with the convergence hypothesis: those countries with the
lower levels of absolute productivity tend to have the higher
productivity growth rates. The relatively strong growth rate for the US
and the rather more uncertain recent weak growth in Japan do not fit
easily, however, with the convergence hypothesis.
Julia Darby and Simon Wren-Lewis
Changing Trends in International Manufacturing Productivity
Discussion
Paper No. 410, April 1990 (IM)
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