Enhancing Productivity. Philippe Aghion

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1 Enhancing Productivity Philippe Aghion

2 Basic questions How to enhance productivity growth in advanced and in emerging market economies? Technological waves and differences in their diffusion patterns across countries

3 Large GDP/capita & TFP differences across countries Average US worker produces more in a day than Tanzanian in a month with same inputs Source: Jones 3 and Romer (2010). US=1

4 Determinants of productivity differences and productivity growth Technology Innovation-enhancing institutions and policies (IP, R&D policy, regulation, competition) Education and universities (which foster innovation and imitation) Efficiency Resource allocation Management practices

5 Enhancing productivity growth in advanced countries - Investment in higher education - Liberalization of product and labor markets - Employment duration and rate

8 EPL Variable eq1 eq2 eq3 eq4 eq5 Leader MFP growth Gap to Leader *** *** EPL EPL, for highest tercile ** ** *** EPL, for middle tercile * EPL, for lowest tercile MFP Gap, for highest tercile *** Gap, for middle tercile Gap, for lowest tercile *** *** *** EPL*Gap, for highest tercile * EPL*Gap, for middle tercile EPL*Gap, for lowest tercile * ** Leader growth, for highest tercile *** Leader growth, for middle tercile Leader growth, for lowest tercile legend: * p<.1; ** p<.05; *** p<.01

9 France catching up with scandinavian countries Effects after 5 yrs 10 yrs 15 yrs Reforming higher education Effects :. On mean annual growth of per capita GDP 0,1 0,3 0,4. On per capita GDP level 0,6 1,9 3,9 Reforming product and labor markets Effects :. On mean annual growth of per capita GDP 0,2 0,2 0,2. On per capita GDP level 0,9 2,1 3,3 9

10 3,5 3 2,5 2 1,5 1 0, Long terme Enseignement supérieur Réforme des marchés des produits et du travail Augmentation de l'input en travail (emploi et durée) Croissance potentielle 'spontanée' 10

11 Enhancing productivity growth in emerging market economies

13 Wide variation in management: US and Japan leading, developing nations trailing (includes 2013 wave) United States Japan Germany Sweden Canada Great Britain France Italy Australia Poland Mexico Singapore New Zealand Northern Ireland Portugal Republic of Ireland Greece Chile China Brazil Argentina India Colombia Kenya Zambia Nicaragua Ethiopia Ghana Tanzania N=80 N=50 N=74 N=122 N=87 N=1289 N=176 N=658 N=403 N=412 N=1208 N=632 N=313 N=454 N=364 N=515 N=306 N=150 N=136 N=307 N=160 N=269 N=581 N=755 Africa N=1111 N=558 Asia N=840 N=127 Australasia N=120 Europe Latin America North America Average Management Scores, Manufacturing

14 Average management scores across countries are strongly correlated with GDP per capita 3 2 Africa Australasia Asia Europe Latin America North America management x log of GDP PPP per capita United States Japan Germany Sweden Canada ItalyFrance United Kingdom Australia Kenya India China Brazil Colombia MexicoPoland Chile Argentina New Zealand Singapore Portugal Republic of Ireland Greece Zambia Ethiopia Ghana Nicaragua Tanzania Log of 10-yr average GDP based on PPP per capita GDP(Current int'l $ - Billions) Note: April 2013, World Economic Outlook (IMF) indicator Data includes 2013 survey wave as of 9/20/2013. Africa data not yet included in the paper

15 Technological waves

16 Technological waves Productivity over the period Using annual and quarterly data From the end of the Long Depression to the Great Crisis 13 advanced countries G7: US, UK, Japan, France, Germany, Italy, Canada Spain, The Netherlands, Finland Australia, Sweden, Norway +reconstituted Euro area Labor Productivity and TFP

17 1. Two productivity growth waves

18 Trend of productivity growth rate Two productivity growth waves 5% United States: HP filtering of Productivity growth with λ=500 4% 3% 2% 1% 0% Total factor Productivity Labor Productivity

19 Two productivity growth waves 1 st productivity growth wave: 2 nd industrial revolution: electricity, internal combustion engine, chemistry, communication (Gordon, 2000) But also production organization and financial markets (Ferguson and Washer, 2004) Long lag in diffusion: cf. electricity (David, 1990) 2 nd productivity growth wave: ICT Smaller wave Ended?

20 2. In other countries, delayed productivity growth waves (if any)

21 Trend of LPgrowth rate Delayed productivity growth waves in other countries 8% HP filtering of Labor Productivity growth with λ=500 7% 6% 5% 4% 3% 2% 1% 0% -1% United States Japan Euro Area United Kingdom

22 Trend of TFP growth rate Delayed productivity growth waves in other countries 5% HP filtering of TFP growth with λ=500 4% 3% 2% 1% 0% -1% -2% United States Japan Euro Area United Kingdom

23 Delayed productivity growth waves in other countries 1 st productivity growth wave: Hitting the euro area, Japan and UK after WWII Different amplitude but from different productivity levels 2 nd productivity growth wave: Absent so far in the euro area and Japan Low productivity growth in the 1990s: Role of labor market policy Low ICT diffusion: Role of market rigidities / education A delayed wave?

24 3. Global productivity breaks due to global shocks

25 US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Labor productivity

26 US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Wars Labor productivity

27 US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Global financial crisis Labor productivity

28 US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Global supply shocks Labor productivity

29 Global Productivity breaks Due to wars, but in a divergent way: Upward level break for the United States Downward for France, Germany and Japan Due to the Great Depression, but very different recovery: Most countries affected, except Japan, Italy and the UK Exit through war for most countries But strong rebound in the US and Canada Due to global supply shocks Generalized impact of the first oil shock But different timings: US 1966/69 Due to the financial crisis Early break in the US?

30 4. Country-specific productivity breaks due to idiosyncratic shocks

31 US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: country-specific shocks Sweden Labor productivity Total Factor Productivity

32 US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: country-specific shock Japan Labor productivity Total Factor Productivity

33 Country-specific productivity breaks Due to localized innovation clusters: US 1933: 2 nd industrial revolution US 1995: ICT (Jorgenson, 2001) Due to policy shocks/structural reforms: Canada or Sweden 1990s The Netherlands, 1983 Japan, 1990 Thatcher shock in the United Kingdom?

34 Reformers Netherlands: Wassenaard agreement, 1982 TFP growth : ,5 %, ,5 % Canada, reforms initiated in early 1990s TFP growth: ,3 %, ,1 % Australia, reforms initiated in early 1990s TFP growth: ,4 %, ,4 % Sweden, reforms initiated in early 1990s TFP growth: ,4 %, ,9 % 34

35 Conclusion Long-run productivity Role of product and labor market flexibility, of higher education, and of equity financing in developed economies Role of reallocation and management practices in EMEs Waves Two main waves Major role of wars and supply shocks Interaction with structural reforms

Ομιλία του κ. Philippe Aghion. Καθηγητή Οικονομικών στο Πανεπιστήμιο Harvard

Ομιλία του κ. Philippe Aghion. Καθηγητή Οικονομικών στο Πανεπιστήμιο Harvard Ομιλία του κ. Philippe Aghion Καθηγητή Οικονομικών στο Πανεπιστήμιο Harvard Growth, Innovation,and the Smart State Introduction During the post-war period, growth in European countries was mainly driven