Working Paper: NBER ID: w26803
Authors: Zhen Huo; Andrei A. Levchenko; Nitya Pandalainayar
Abstract: This paper develops estimates of TFP growth adjusted for movements in unobserved factor utilization for a panel of 29 countries and up to 37 years. When factor utilization changes are unobserved, the commonly used Solow residual mismeasures actual changes in TFP. We use a general equilibrium dynamic multi-country multi-sector model to derive a production function estimating equation that corrects for unobserved factor usage. We compare the properties of utilization-adjusted TFP series to the standard Solow residual, and quantify the roles of both TFP and utilization for international business cycle comovement. Utilization-adjusted TFP is virtually uncorrelated across countries, and does not generate much GDP comovement through its propagation. Shocks to factor utilization can more successfully account for international co-movement.
Keywords: Utilization-Adjusted TFP; International Comovement; Solow Residual; Economic Cycles
JEL Codes: F41; F44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Utilization-adjusted TFP (O49) | GDP comovement (F62) |
| TFP shocks (F16) | GDP comovement (F62) |
| Utilization shocks (L97) | GDP comovement (F62) |
| Solow residual (O41) | Utilization-adjusted TFP correlation (O49) |
| Non-technology shocks (E39) | GDP comovement (F62) |