Transcript presentation

MEASURING PRODUCTION FACTOR
CONTRIBUTIONS TO GROWTH: A
NOVEL EXPENDITURE-BASED
SECTORAL PPP APPROACH
Saša Drezgić, PhD
University of Rijeka
Faculty of Economics
16th Dubrovnik Economic Conference
CONTENTS

INTRODUCTION

DATA
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CONSTRUCTION OF SECTORAL PPPs

ESTIMATION

RESULTS

CONCLUSION
INTRODUCTION
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MOTIVATION FOR THE RESEARCH
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VAST EMPIRICAL RESEARCH: PRODUCTION FACTOR
CONTRIBUTIONS ON AGGREGATE LEVEL, LEVEL
ACCOUNTING (Jorgensen, Kuroda, Nishimizu (1987),
Jorgensen, Kuroda), SECTORAL CONVERGENCE (Bernard
and Jones, 1996, Arcelus and Arocena, 2000)
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PROBLEMS: LACK OF DATA, COVERSION FACTORS
DATA
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10 OECD COUNTRIES
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AUSTRALIA, AUSTRIA, DENMARK, FINLAND, ITALIA,
JAPAN, KOREA, NETHERLANDS, UNITED KINGDOM AND
UNITED STATES
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1980 - 2005
DATA – VARIABLES USED
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GROSS OUTPUT AT CURRENT BASIC PRICES
GROSS VALUE ADDED AT CURRENT BASIC PRICES
TAXES MINUS SUBSIDIES ON PRODUCTION
NET CAPITAL STOCK
GROSS FIXED CAPITAL FORMATION
TOTAL HOURS WORKED BY PERSONS ENGAGED
TOTAL HOURS WORKED BY HIGH-SKILLED PERSONS
ENGAGED
GROSS OUTPUT PRICE INDICES
GROSS VALUE ADDED PRICE INDICES
REAL GROSS FIXED CAPITAL FORMATION
GROSS FIXED CAPITAL FORMATION PRICE INDICES
DATA - INDUSTRIES
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
Agriculture, hunting and forestry
Fishing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Wholesale and retail trade; repair of vehicles and household
goods
Hotels and restaurants
Transport, storage and communication
Financial intermediation
Real estate, renting and business activities
Public administration and defence; social security
Education
Health and social work
Other community, social and personal service activities
CONSTRUCTION OF SECTORAL PPPs
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CONVERSION FACTORS FOR SECTORAL EMPIRICS:
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EXCHANGE RATE,
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AGGREGATE PPP - Dollar and Wolff (1988), Bernard and
Jones (1996), Arcelus and Arocena (2000), Malley et al. (2003),
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SECTORAL CONVERSION FACTORS – Hooper and Larin
(1989), Van Ark and Pilat (1993), Hooper (1996), Pilat (1996),
Harrigan (1999), Van Biesebroeck (2007)
DEBATE ON SECTORAL CONVERSION
FACTORS
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Van Biesebroeck (2007) – SECTORAL PPPs ARE NOT
APPROPRIATE!!!
Sorensen and Schjering (2008) – PROBLEM OF THE BASE YEAR,
DO SECTORAL PPPs FOLLOW SECTORAL PRICE CHANGES?
Bernard, A. B. and Jones C. I., “Comparing Apples to Oranges:
Productivity Convergence and Measurement Across Industries and
Countries”, American Economic Review 86 (5), (1996, December):
1216–38.
Sørensen, A., “Comparing Apples to Oranges: Productivity
Convergence and Measurement Across Industries and Countries:
Comment”, American Economic Review 91 (2001):1160–7.
Bernard, A. B. and Jones C. I., “Comparing Apples to Oranges:
Productivity Convergence and Measurement Across Industries and
Countries: Reply”, American Economic Review 91 (4), (2001,
September): 1168–69.
Sorensen, Schjerning (2008)
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Sørensen, A., Schjerning, B., “Productivity Measuring in
Manufacturing and the Expenditure Approach”, Review of
International Economics, 16(2), (2008): 327–340
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SECTORAL CONVERSION FACTORS INNAPROPRIATE:
“relative measures of productivity depend significantly on the
choice of base year and change systematically as the base
year changes”…
“Therefore, rethinking the methods for developing conversion
factors for sectoral productivity comparisons is needed ”…
“a consequence of that is the fact that international
comparisons based on such measures potentially lead to false
results and conclusions”!!!
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METHODOLOGY
1)
2)
P GO it
PPPGDPit  GO
P USAt
P X it
X
PPP X it
P
USAt

PPPGDPit
P GO it
P GOUSAt
…
GDPPPPi1
3)

n
t 1
4)
GDPPPPit
PPP X i1
X
PPP
it
t 1
n


GDPPPPi 2

n
t 1
GDPPPPit
PPP X i 2
X
PPP
it
t 1
n
  
  
GDPPPPin

n
t 1
GDPPPPit
PPP X in
X
PPP
it
t 1
n
1
1
…
PPP X in
X
PPP
it

t 1
 PPPGDPit *
GDPPPPin
n
5)
PPP X it

n
t 1
GDPPPPit
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
84
19
83
19
82
19
81
19
80
1,3
BASE YEAR EFFECT
1,2
1,1
1
0,9
GDPPP
author
2005s
1980s
0,8
0,7
0,6
STATIONARITY AND COINTEGRATION
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Levin, Liu and Chu (LLC) test, Im, Peseran and Shin, (IPS) test,
ADF, PP test
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VARIABLES INTEGRATED OF ORDER 1
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NO CLEAR-CUT ANSWER ON THE COINTEGRATION
(PEDRONI TESTS)
MODEL
ln Yit   ln K it  1 ln Lit   2 H it  uit
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ARDL (1,1,1,1,)
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PMG AND MG ESTIMATION
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PMG ALLOWS FOR INTERCEPTS, SHORT-RUN
COEFFICIENTS AND ERROR VARIANCES TO DIFFER
ACROSS GROUPS – BUT, IMPOSES LONG RUN
HOMOGENEITY
RESULTS
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LONG TERM GROWTH COMES FROM THE CAPITAL
ACCUMULATION AND GROWTH OF HUMAN CAPITAL –
SHORT RUN – EMPLOYMENT AND CAPITAL
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COEFFICIENTS OF CONVERGENCE RELATIVELY HIGH
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CAPITAL ACCUMULATION THE MOST IMPORTANT FACTOR
IN MAJORITY OF INDUSTRIES
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HUMAN CAPITAL SHOWS DIFFERENT DYNAMICS IN MANY
INDUSTRIES
CONCLUSION
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MAIN CONTRIBUTION – SECTORAL PPP CONVERSION
FACTORS
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DIFFERENT FACTOR DYNAMICS AT INDUSTRIAL LEVEL –
NEED FOR MORE RESEARCH
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QUALITY OF INDUSTRIAL POLICY?
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SUBSTANTIAL HETEROGENEITY ACROSS COUNTRIES AND
INDUSTRIES
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FURTHER RESEARCH: NUMEROUS APPLICATIONS OF THE
METHODOLOGY…