Creator: McGrattan, Ellen R. and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 250 Abstract:
This chapter reviews the literature that tries to explain the disparity and variation of GDP per worker and GDP per capita across countries and across time. There are many potential explanations for the different patterns of development across countries, including differences in luck, raw materials, geography, preferences, and economic policies. We focus on differences in economic policies and ask to what extent can differences in policies across countries account for the observed variability in income levels and their growth rates. We review estimates for a wide range of policy variables. In many cases, the magnitude of the estimates is under debate. Estimates found by running cross-sectional growth regressions are sensitive to which variables are included as explanatory variables. Estimates found using quantitative theory depend in critical ways on values of parameters and measures of factor inputs for which there is little consensus. In this chapter, we review the ongoing debates of the literature and the progress that has been made thus far.
Keyword: Growth regressions, Endogenous growth theory, Growth accounting, and Cross-country income differences Subject (JEL): O11 - Macroeconomic Analyses of Economic Development, E65 - Studies of Particular Policy Episodes, E62 - Fiscal Policy, O41 - One, Two, and Multisector Growth Models, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Asturias, Jose, Hur, Sewon, Kehoe, Timothy Jerome, 1953-, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 544 Abstract:
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
Keyword: Entry costs, Entry, Exit, Productivity, and Barriers to technology adoption Subject (JEL): O10 - Economic Development: General, E22 - Investment; Capital; Intangible Capital; Capacity, O38 - Technological Change: Government Policy, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 453 Abstract:
Following its opening to trade and foreign investment in the mid-1980s, Mexico’s economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person.
Subject (JEL): E23 - Macroeconomics: Production, F14 - Empirical Studies of Trade, E65 - Studies of Particular Policy Episodes, O20 - Development Planning and Policy: General, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, and O10 - Economic Development: General
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 353 Abstract:
In recent financial crises and in recent theoretical studies of them, abrupt declines in capital inflows, or sudden stops, have been linked with large drops in output. Do sudden stops cause output drops? No, according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country’s collateral constraint on foreign borrowing. In this model, in fact, sudden stops lead to output increases, not decreases. An examination of the quantitative effects of a well-known sudden stop, in Mexico in the mid-1990s, confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone. To generate an output drop during a financial crisis, as other studies have done, the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop.
Subject (JEL): O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance, F21 - International Investment; Long-term Capital Movements, O19 - International Linkages to Development; Role of International Organizations, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Gopinath, Gita, 1971-, Kalemli-Özcan, Şebnem, Karabarbounis, Loukas, and Villegas-Sanchez, Carolina Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 728 Abstract:
Starting in the early 1990s, countries in southern Europe experienced low productivity growth alongside declining real interest rates. We use data for manufacturing ﬁrms in Spain between 1999 and 2012 to document a signiﬁcant increase in the dispersion of the return to capital across ﬁrms, a stable dispersion of the return to labor, and a signiﬁcant increase in productivity losses from capital misallocation over time. We develop a model with size-dependent ﬁnancial frictions that is consistent with important aspects of ﬁrms’ behavior in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a signiﬁcant decline in sectoral total factor productivity as capital inﬂows are misallocated toward ﬁrms that have higher net worth but are not necessarily more productive. We show that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway.
Keyword: Europe, Misallocation, Capital flows, Dispersion, and Productivity Subject (JEL): E22 - Investment; Capital; Intangible Capital; Capacity, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance, and F41 - Open Economy Macroeconomics
Creator: Ohanian, Lee E. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 285 Abstract:
Between 1929 and 1933, real output per adult fell over 30 percent and total factor productivity fell 18 percent. This productivity decrease is much larger than expected from just extrapolating the productivity decrease that typically occurs during recessions. This paper evaluates what factors may have caused this large decrease, including unmeasured factor utilization, changes in the composition of production, and increasing returns. I find that these factors combined explain less than one-third of the 18 percent decrease, and I conclude that the productivity decrease during the Great Depression remains a puzzle.
Subject (JEL): N12 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-, E32 - Business Fluctuations; Cycles, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Lagakos, David P. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 428 Abstract:
I document that cross-country productivity differences in retail trade, which employs around 20% of workers, are accounted for in large part by compositional differences. In richer countries, most retailing is done in modern stores, with high measured output per worker, whereas in developing countries, retail trade is dominated by less-productive traditional stores. I hypothesize that developing countries rationally adopt few modern stores since car ownership rates are low. A simple quantitative model of home production supports the role of cars in determining the composition of retail technologies used and retail-sector productivity differences across countries.
Keyword: Productivity differences, Technology adoption, and Retail trade Subject (JEL): O11 - Macroeconomic Analyses of Economic Development, L81 - Retail and Wholesale Trade; e-Commerce, O33 - Technological Change: Choices and Consequences; Diffusion Processes, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Jovanovic, Boyan, 1951- and Rob, Rafael Series: Models of economic growth and development Abstract:
This paper presents a model of growth through technical progress. The nature and scope of what is learned is derived from a set of axioms, and optimal search behavior by agents is then analyzed. Agents can search intensively or extensively. Intensive search explores a technology in greater depth, while extensive search yields new technologies. Agents alternate between these two modes of search. The economy grows forever and the growth rate is bounded away from zero. The growth rate is on average higher during periods of intensive search than during periods of extensive search. Epochs of higher growth are initiated by discoveries that call for further intensive exploration. This mechanism is reminiscent of the process described by Schumpeter as causing long-wave business cycles. Serial correlation properties of output and growth stem from the presence of intensive rather than extensive search. The two key parameters are technological opportunity and the cost of the extensive search.
Subject (JEL): O30 - Technological change ; Research and development - General and O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence