Enhancing Productivity Philippe Aghion
Basic questions How to enhance productivity growth in advanced and in emerging market economies? Technological waves and differences in their diffusion patterns across countries
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
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
Enhancing productivity growth in advanced countries - Investment in higher education - Liberalization of product and labor markets - Employment duration and rate
EPL Variable eq1 eq2 eq3 eq4 eq5 Leader MFP growth 0.02949 0.02996 0.02830 0.02813 Gap to Leader -0.00858*** -0.00836*** EPL -0.00000 EPL, for highest tercile 0.00002-0.00009** -0.00011** -0.00015*** EPL, for middle tercile 0.00004* 0.00002 0.00001 0.00001 EPL, for lowest tercile 0.00004-0.00005 0.00002 0.00003 MFP Gap, for highest tercile -0.01261*** -0.00816-0.00547 Gap, for middle tercile -0.00276-0.00174-0.00210 Gap, for lowest tercile -0.00901*** -0.01095*** -0.01173*** EPL*Gap, for highest tercile -0.00017-0.00029* EPL*Gap, for middle tercile -0.00004-0.00003 EPL*Gap, for lowest tercile 0.00012* 0.00014** Leader growth, for highest tercile 0.13600*** Leader growth, for middle tercile 0.00817 Leader growth, for lowest tercile -0.02597 legend: * p<.1; ** p<.05; *** p<.01
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
3,5 3 2,5 2 1,5 1 0,5 0 2008-2012 2013-2017 2018-2022 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
Enhancing productivity growth in emerging market economies
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 2 2.5 3 3.5 Average Management Scores, Manufacturing
3.5 2.5 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 7 8 9 10 11 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
Technological waves
Technological waves Productivity over the period 1890-2012 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
1. Two productivity growth waves
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% 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 Total factor Productivity Labor Productivity
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?
2. In other countries, delayed productivity growth waves (if any)
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% 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 United States Japan Euro Area United Kingdom
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% 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 United States Japan Euro Area United Kingdom
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?
3. Global productivity breaks due to global shocks
US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Labor productivity
US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Wars Labor productivity
US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Global financial crisis Labor productivity
US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: global shocks Global supply shocks Labor productivity
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?
4. Country-specific productivity breaks due to idiosyncratic shocks
US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: country-specific shocks Sweden Labor productivity Total Factor Productivity
US$ PPP of 2005 (log scale) Areas in grey: war periods Productivity breaks: country-specific shock Japan Labor productivity Total Factor Productivity
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?
Reformers Netherlands: Wassenaard agreement, 1982 TFP growth : 1977-1983 0,5 %, 1983-2002 1,5 % Canada, reforms initiated in early 1990s TFP growth: 1974-1990 0,3 %, 1990-2000 1,1 % Australia, reforms initiated in early 1990s TFP growth: 1971-1990 0,4 %, 1990-2002 1,4 % Sweden, reforms initiated in early 1990s TFP growth: 1976-1992 0,4 %, 1992-2008 1,9 % 34
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