Working Paper: NBER ID: w16043
Authors: John Fernald; Brent Neiman
Abstract: We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain estimates of aggregate and sectoral technology growth as well as reallocation effects. We also apply our framework to reconcile divergent TFP estimates in Singapore and to resolve other empirical puzzles regarding Asian development.
Keywords: growth accounting; misallocation; Singapore; total factor productivity
JEL Codes: E01; F43; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital subsidies (H29) | TFP growth (O49) |
| monopoly power (D42) | TFP growth (O49) |
| capital subsidies (H29) | divergence of primal and dual TFP growth (O49) |
| preferential tax treatment (H20) | divergence of observed factor shares and true technology growth (F62) |
| misallocation of capital (E22) | overall productivity growth (O49) |
| market distortions (D43) | productivity statistics interpretation (E23) |