Working Paper: CEPR ID: DP3078
Authors: Nicholas Crafts; Terence C. Mills
Abstract: The Paper considers the accuracy of traditional TFP growth estimates using an econometric methodology which takes account of scale economies, fixed factors of production and adjustment costs to reveal underlying ?pure technological change?. The results suggest that these biases vary substantially over time but do not impact heavily on Anglo-German comparisons. In both countries the early post-war years are a period when adjustment costs from a rising supply price of capital goods hold down TFP growth below that which could have accrued from pure technological progress. As might be expected, this problem largely disappeared in the later globalization period.
Keywords: adjustment costs; manufacturing; total factor productivity
JEL Codes: N14; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Traditional measures of TFP growth (O49) | TFP growth is overstated or understated (O40) |
| Rising supply price of capital goods (D24) | Lower TFP growth than what could have been achieved through pure technological progress (O49) |
| Adjustments made to TFP measurements (D20) | Contribution of innovation to productivity growth declined significantly (O49) |
| Dynamics of market power and competition in the UK and Germany (L11) | Influenced TFP growth (O49) |
| Greater competition in the UK (L19) | Faster productivity growth relative to Germany after the 1970s (O49) |