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MEASURING PRODUCTIVITY
Productivity
Productivity = effectiveness with which factors of production (such as K, L) are converted into output So far: looked at accumulation of factors of production DISREGARDING productivity differences A often assumed to be the same across countries This is typically not the case We use development accounting and growth accounting to learn about and quantify the role of productivity
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Where kh1- represents an aggregate measure of factors of production (per worker) and A is productivity
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Development accounting = application of formula to compute productivity from data on output and factor accumulation
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Figure 7.2 & 7.4 Role of Factors of Production and Productivity in Determining Output per Worker, 2005
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Growth accounting
Growth accounting is a technique to compute productivity growth (from Solow 1957) The same formula y=Akh1- that we used before can be transformed in growth rates (How? Take the derivative of both left-hand and right-hand side of the equation with respect to time and then divide the result by y) The following expression is obtained gy = gA + ( gk + (1-) gh) and then used to compute the growth rate of productivity as a residual: gA = gy - ( gk + (1-) gh) Not by chance gA is labelled the Solow residual
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Figure 7.5 & 7.6 Role of factors of production and productivity in determining Gdp growth, 19702005
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Chapter 10
EFFICIENCY
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Had efficiency stayed constant, then the technology gap between the US would be 0.94 (=1.0066-10)
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Conclusion: most of the productivity gap between India and the US would stem from efficiency
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