Transcript Lecture 7 - Panel Data - 2016 WEast Workshop in Prague

Bocconi
WEast Workshop  VŠE Prague, 1 July 2016
Why did Socialism Fail?
The Role of Factor Inputs Reconsidered
Alexander Klein (University of Kent)
Tamás Vonyó (Bocconi University)
Bocconi
Why did socialism fail?
1 July 2016
1. The Context
• Post-1945 divergence in Europe
– Two fundamentally economic systems
– Fundamentally different growth outcomes
• Why did socialism fail?
– Limits to extensive growth  overinvestment (Horvat, Krugman)
Klein & Vonyó
– Shortage economy: resource hunger  inefficient allocation (Kornai)
– Growing technological lag (Kalecki)
‘ … had a satisfactory productivity performance in the era of mass
production, but could not adapt to the requirements of flexible production
technology during the 1980s’ (Broadberry – Klein)
Bocconi
Why did socialism fail?
1 July 2016
2. Falling behind
Annual growth rates of GDP per capita in Europe (%)
6
East
5
Western core
Western periphery
4
3
Klein & Vonyó
2
1
0
1950s
Source: Maddison Project
1960s
1970s
1980s
Bocconi
Why did socialism fail?
1 July 2016
3. Quantitative evidence
• Existing growth accounts
– modest TFP growth after 1970, often negative growth in the 80s
– Inefficiency of socialism manifested in a productivity failure
• Previous studies biased by inconsistent use data
Klein & Vonyó
– Substantially downward revised output levels and output growth
– Official data on investment and capital accumulation
– No adjustment for declining working hours

Previous accounts overestimated capital deepening and thus
underestimated productivity growth.
Bocconi
Why did socialism fail?
1 July 2016
4. Extensive growth … or not?
• Perspiration or inspiration?
– Authoritarian growth (Krugman, 1994)
– Revised growth accounts for East Asian tigers (Hsieh, 2002)
• Were socialist economies any different?
Klein & Vonyó
– Revised cross-country data (new price benchmarks)
– Retrospective national accounts (Russia, Yugoslavia)

Role of factor inputs in the socialist growth failure has to be reconsidered.
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Why did socialism fail?
1 July 2016
5. Revised investment rates
Revised rates of investment 1970-1989 (% of GDP)
55
50
45
40
BUL old
HUN old
35
POL old
30
Klein & Vonyó
25
BUL new
20
HUN new
15
POL new
10
5
Source: PWT 5.6 (red); PWT 8.0 (black)
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Why did socialism fail?
1 July 2016
6. Our agenda
1. New measures
•
•
•
New investment series independent of official investment data
New series of capital stock derived from new investment data
Adjust employment data for education and changes in work hours
2. Growth accounting
Klein & Vonyó
a.
b.
Revised measures of input and productivity growth
Compare with measures consistent with pre-existing data
3. Decomposition analysis
a.
b.
Productivity per worker at industry level
Aggregate effect of labour reallocation
Klein & Vonyó
Bocconi
Why did socialism fail?
1 July 2016
7. Main findings
1.
Weighted input growth slowed down from the 60s and, in Hungary and
Poland, turned negative during the 80s.
2.
Labour-productivity growth remained relatively high. Structural change
productivity enhancing until 1970, but limited growth after 1980.
3.
Rate of TFP growth dropped after the early post-war period, but did not
fall further between the 70s and 80s. It even increased marginally, once
we account for labour reallocation.
4.
Compared to the West, productivity growth in East Central Europe was
relatively slow, but not not only or especially during the 1980s. The
growth retardation of the 1980s did not result from the failure to sustain
productivity growth but from the failure to sustain factor accumulation.
Klein & Vonyó
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Why did socialism fail?
8. The results in a nutshell
1 July 2016
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Why did socialism fail?
1 July 2016
9. The crisis of the 80s
• “The worst things come in pairs”
– Oil shocks: the effect of higher oil prices came at once and lasted
longer than elsewhere
– Debt crises after borrowing costs shot up: Poland first to default
 Solution: limit imports and stop borrowing  austerity
Klein & Vonyó
• Austerity targeted investment, not consumption. Scare
resources spent on public projects, not on new equipment.
 Consequences: structural sclerosis, ageing technologies,
worsening capacity utilisation
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Why did socialism fail?
1 July 2016
10. Data revisions
• GNP by sector of origin of product
– Alton et al, Research Project on National Income in East Central Europe
– Index numbers estimated using physical output indicators
– Complete series for CZ and H, from 1965 for PL (Alton for 1950-65)
Klein & Vonyó
• Labour input
– Total employment and employment by sector from official sources
– Educational attainment from Barro-Lee
– Changes in average work hours proxied by the official work week
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Why did socialism fail?
1 July 2016
11. Investment
• Investment estimated by two approaches
1.
Supply-side: upper-bound estimate of available investment goods
construction + (machinery output + net machinery imports)
2.
Demand-side: residual of gross product available for domestic use
minus personal and government consumption (post 1965)
Klein & Vonyó
• ‘Residual of the residual’ approach:
1.
Gross investment = residual – defence – R&D
–
Defence spending: SIPRI (spending in constant prices and as % of GNP)
–
R&D outside higher education and medical research: official stats
–
Changes in inventories assumed to be random: no time trend in relative size
2.
Equipment investment = gross investment – construction
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Why did socialism fail?
1 July 2016
12. Projected estimates
• Gross capital stock estimated by perpetual inventory.
• Benchmark: gross capital stock in 1967 (CZ), 1968 (H), 1971 (PL)
– Introduction of New Economic Mechanism
– Price reforms: re-evaluation of physical assets in the socialist sector
– Benchmark values for fixed capital in equipment and structures taken
from official detailed investment repositories
Klein & Vonyó
• Investment prices
– Revised series for investment converted into benchmark-year prices
• Capital replacement
– Constant rate of 2% for structures (50 years)
– Constant rate of 4% for equipment (25 years)
Klein & Vonyó
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Why did socialism fail?
1 July 2016
13. Revisions: investment (CZ)
Klein & Vonyó
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Why did socialism fail?
1 July 2016
14. Revisions: investment (H)
Klein & Vonyó
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Why did socialism fail?
1 July 2016
15. Revisions: investment (PL)
Klein & Vonyó
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Why did socialism fail?
1 July 2016
16. Revisions: factor inputs (H)
Table 2: Growth of output and factor inputs in Hungary (p.a. log%)
1950s
1960s
1970s
1980s
NMP (official)
5.7
5.3
4.4
1.1
GDP (revised)
4.5
4.1
2.4
0.9
Capital (Official)
3.5
4.2
5.5
3.9
Capital (Revised)
2.6
3.8
3.8
1.9
Labour (Empoyment)
1.4
0.5
0.2
-0.5
Labour (Hours worked)
1.4
0.1
-0.2
-1.6
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Why did socialism fail?
1 July 2016
17. Revised growth accounts(H)
Table 3: Productivity growth in Hungary (p.a. log%)
1950s
1960s
1970s
1980s
NMP per worker
4.3
4.8
4.2
1.6
GDP per worker
3.1
3.6
2.1
1.4
GDP per hour
3.1
4.0
2.6
2.5
TFP (Official)
3.5
3.3
2.1
-0.2
Output
2.3
2.1
0.0
-0.4
+ Capital
2.6
2.3
0.7
0.4
+ Labour
2.6
2.5
1.0
1.1
Klein & Vonyó
TFP (Revised)
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Why did socialism fail?
1 July 2016
18. Comparative performance
Table 4: Productivity growth in Central Europe (p.a. log%)
1950s
West Germany
Austria
Czechoslovakia
Hungary
Klein & Vonyó
Poland
6.6
4.4
4.1
3.1
2.6
1960s
1970s
Labour productivity
5.2
3.7
4.9
2.9
2.6
2.1
4.0
2.6
2.1
2.6
1980s
2.6
2.3
1.1
2.5
2.2
TFP
West Germany
Austria
Czechoslovakia
Hungary
Poland
5.5
3.6
3.2
2.6
3.1
3.0
3.1
1.3
2.5
2.0
2.4
1.6
0.7
1.0
1.3
1.6
1.0
0.3
1.1
0.9
Bocconi
Why did socialism fail?
Klein & Vonyó
Why did socialism fail?
ADDITIONAL SLIDES
1 July 2016
Klein & Vonyó
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Why did socialism fail?
1 July 2016
The broader project
• ‘Socialist industrialisation or post-war reconstruction: understanding
Hungarian economic growth, 1949-1967’, Journal of European Economic
History, vol. 39, 2 (2010), pp. 253-300.
• ‘War and Socialism: why Eastern Europe fell behind between 1950 and
1989’, Economic History Review, accepted and forthcoming.
• ‘How peripheral was the periphery: industrialisation in Central Europe
since 1870’ (with Alex Klein and Max-Stephan Schulze), in Industrialisation
in the Global Periphery, ed. Kevin H. O’Rourke and Jeffrey G. Williamson,
Oxford University Press, forthcoming.
• ‘Economic growth and sectoral developments, 1945-1989’, in preparation
for The Economic History of Central, East and Southeast Europe: 1800 to
the Present, ed. Matthias Morys, Routledge.
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Why did socialism fail?
1 July 2016
Central planning
Monitoring
Output target (plan)
Report on plan fulfilment
Klein & Vonyó
Central
planner
Investment and work report
Enterprise
manager
Input allocation
Maximise
output
Extensive growth
Maximise
Inputs
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Why did socialism fail?
Growth accounting
The Solow model
Klein & Vonyó
Extended Solow model
1 July 2016
Klein & Vonyó
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Why did socialism fail?
GNP by sector of origin
1 July 2016
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Why did socialism fail?
1 July 2016
Decomposition analysis
Timmer et al. (2010), Economic Growth in Europe, CUP.
P Y Y   PjZ Z j
j
z j  Z j Lj
Klein & Vonyó
Y
 ln Yt Lt     ln z jt 
j
L
Y
Z, j
  ZY . j z j
j


Y
Y

    ln L jt  Z , jt   ln L     ln z jt  Z , j  Rt
j
 j

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Why did socialism fail?
1 July 2016
Structural change
Table 5: Decomposition of aggregate labour productivity growth (log%)
1950s
1960s
1970s
1980s
Czechoslovakia
Aggregate growth
3.7
1.9
1.8
0.6
Industry contribution
2.3
1.3
1.8
0.9
Relocation effect
1.4
0.6
0.0
-0.3
Klein & Vonyó
Hungary
Aggregate growth
3.1
3.6
2.2
1.4
Industry contribution
3.0
3.0
2.3
1.5
Relocation effect
0.1
0.6
-0.1
-0.1
Poland
Aggregate growth
2.6
2.1
2.2
0.9
Industry contribution
1.2
1.2
1.5
1.0
Relocation effect
1.4
0.9
0.7
-0.1