Working Paper: NBER ID: w15592
Authors: Robert C. Feenstra; Benjamin R. Mandel; Marshall B. Reinsdorf; Matthew J. Slaughter
Abstract: Since 1995, growth in productivity in the United States appears to have accelerated dramatically. In this paper, we argue that part of this apparent speed-up actually represents gains in the terms of trade and tariff reductions, especially for information-technology products. We demonstrate how unmeasured gains in the terms of trade and declines in tariffs can cause conventionally measured growth in real output and productivity to be overstated. Building on the GDP function approach of Diewert and Morrison, we develop methods for measuring these effects. From 1995 through 2006, the average growth rates of our alternative price indexes for U.S. imports are 1.5% per year lower than the growth rate of price indexes calculated using official methods. Thus properly measured terms-of-trade gain can account for close to 0.2 percentage points per year, or about 20%, of the 1995-2006 apparent increase in productivity growth for the U.S. economy. Bias in the price indexes used to deflate domestic output is a question beyond the scope of this paper, but if upward bias were also present in those indexes, this could offset some of the effects of mismeasurement of gains in terms of trade.
Keywords: productivity growth; terms of trade; tariff changes; measurement errors
JEL Codes: F43; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unmeasured gains in the terms of trade (F14) | overstated US real output and productivity (E23) |
| declines in tariffs (F19) | overstated US real output and productivity (E23) |
| properly measured terms of trade gains and tariff reductions (F14) | increase in US productivity growth (O49) |
| Information Technology Agreement (ITA) (F13) | increase in productivity growth (O49) |
| mismeasurement of terms of trade (F14) | upward bias in measured productivity growth (O49) |
| actual improvement in US terms of trade higher than reported (F14) | mismeasurement impacts productivity assessments (D20) |