productivity and gdp per capita growth: a long-term perspective, bergeaud, cette & lecat

Productivity and GDP per capita growth: A long-term perspective

Secular Stagnation and Growth Measurement ConferenceBanque de France – January 16, 2017

Antonin Bergeaud, Gilbert Cette, Remy LecatBanque de France and AMSE

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Underlying papers:From Antonin Bergeaud, Gilbert Cette and Remy Lecat - (2016): “Productivity trends in advanced countries between 1980 and

2012”, The Review of Income and Wealth, Vol. 62(3), September, pp. 420-444

- (2016): “The role of production factor quality and technology diffusion in the 20th century productivity growth”, Cliometrica, Forthcoming

- (2015): « GDP per capita over the 20th century in advanced countries », Banque de France, Working Paper n° 549, April.

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Outline

1. Introduction - TFP: A measure of our ignorance2. TFP growth changes from 1890 to 20153. Factors of TFP growth

2.1. What have we done?2.2. The data2.3. The results

4. Concluding remarks4.1. Takeaways4.2. A more complete story

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1. Introduction - TFP: A measure of our ignorance

20th century: a period of exceptional growth What drives the evolution of growth? Abundant literature.

See among others Aghion and Howitt (1998, 2006, 2009) Bergeaud, Cette and Lecat (2015): usual growth accounting methodology

GDP growth = Labour productivity growth

= TFP growth + Capital deepening contribution+ Number of worked hours growth

= Employment growth + Hours per worker growth

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1. Introduction - TFP: A measure of our ignoranceGDP annual growth (in %) and contributions (in pp) – Whole economySource: Bergeaud, Cette and Lecat (2015)

1890

-191

3

1913

-195

0

1950

-197

5

1975

-199

5

1995

-200

5

2005

-201

5

1890

-191

3

1913

-195

0

1950

-197

5

1975

-199

5

1995

-200

5

2005

-201

5

1890

-191

3

1913

-195

0

1950

-197

5

1975

-199

5

1995

-200

5

2005

-201

5

1890

-191

3

1913

-195

0

1950

-197

5

1975

-199

5

1995

-200

5

2005

-201

5

USA Euro Area United Kingdom Japan

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

TFP Capital deepening Population Employment rate Hours worked GDP

o Main GDP growth driver: Productivity growth. And within productivity: TFP growtho Since WW2, growth decrease in the four main economic areas except for 1995-2005 in US and UK thanks

to ICTo Main factor of this growth decrease: TFP slowdown. Risk of Secular Stagnation?

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1. Introduction - TFP: A measure of our ignorance

TFP: lion’s share of labour productivity and GDP per capita growth since 1890

But TFP = residual, once only two inputs are used: capital and labour TFP encompasses the role of all the other inputs and measurement errorsSuch inputs are for example human capital, institutions, technology...

Two questions raised in the papero1st question: What are the main TFP growth changes from 1890 to 2015?o2nd question: What are the main TFP growth drivers?

Data used: oDescribed in Bergeaud, Cette and Lecat (2016)oMany sources from historians and economistsoOwn capital evaluation through permanent inventory modeloDetails on sources and productivity indicators available in free access at:

www.longtermproductivity.com

http://www.longtermproductivity.com/

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2. TFP growth changes from 1890 to 2015Average annual growth rate of TFP (In %)Smoothed indicator (HP filter, λ = 500) - Whole economySource: Bergeaud, Cette and Lecat (2016)

1890

1896

1902

1908

1914

1920

1926

1932

1938

1944

1950

1956

1962

1968

1974

1980

1986

1992

1998

2004

2010

0

1

2

3

4

5

United States

o US: one big wave over the XXth Century, pause during Great Depression, small wave between 1995-2005, huge slowdown from the mid 2000s

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1890

1896

1902

1908

1914

1920

1926

1932

1938

1944

1950

1956

1962

1968

1974

1980

1986

1992

1998

2004

2010

0

1

2

3

4

5

United States Euro Areao US: one big wave over the XXth Century, pause during Great Depression, small wave between 1995-2005,

huge slowdown from the mid 2000s o Euro Area: delay for the big wave, no small wave, huge slowdown from the mid 2000s

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1890

1896

1902

1908

1914

1920

1926

1932

1938

1944

1950

1956

1962

1968

1974

1980

1986

1992

1998

2004

2010

0

1

2

3

4

5

United States Euro Area United kingdomo US: one big wave over the XXth Century, pause during Great Depression, small wave between 1995-2005 o Other countries: delay for the big wave, no small wave except for the UKo Huge slowdown from the mid 2000s in all areas: Risk of Secular Stagnation?

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1890

1896

1902

1908

1914

1920

1926

1932

1938

1944

1950

1956

1962

1968

1974

1980

1986

1992

1998

2004

2010

0

1

2

3

4

5

United States Euro Area United kingdom Japano US: one big wave over the XXth Century, pause during Great Depression, small wave between 1995-2005,

o Other countries: delay for the big wave, no small wave except for the UKo Huge slowdown from the mid 2000s in the all areas : Risk of Secular Stagnation?

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Abundant related literature Main factors of growth over the long-run and their impact: widely studied

subject Some examples (among others):

o On all aspects, Aghion and Howitt (1998), and their following publications o Education - Madsen (2014): education explains 0.48 points of the 1.87%

average growth in GDP per capita; Wide related literature estimating the return of education on growth over the long run (Barro and Lee, 1992, 2010; Morisson and Murtin, 2010; Cohen and Soto, 2007; …)

o Institutions – Barro (xxxx): important role; Prados (2015): new database on economic freedom and institutions over the long run

o Technology - Comin and Mestieri (2013) and Comin and Hobijn (2010): importance of technology adoption to explain divergence between economies; Madsen (2010): importance of technology spillovers using patent data

o … Large uncertainties on TFP growth factor contributions and future scenarios…

2. TFP growth changes from 1890 to 2015

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3. Factors of TFP growth3.1. What have we done?

Analysis of TFP growth over the period 1890-2013 in 17 advanced economies:o G7 countries + Spain, Netherlands, Belgium, Finland, Portugal, Australia,

Sweden, Norway, Switzerland and Denmarko We reconstituted a Euro Area using 8 countries: DEU, FRA, ITA, ESP, NDL, BEL,

FIN, POR (93% of the 2010 EA GDP) o Large focus on the comparison between 4 main areas: USA, Euro Area, UK and

Japan 1st Step: Usual measurement of TFP with capital and labor as inputs. 2nd Step: Measurement of TFP’ = TFP purged from the impact of …

o … human capitalo … age of capital influenceEconometric IV approach

3rd Step: Measurement of TFP’’ = TFP’ minus the impact of …o … 2nd industrial revolution GPT innovation (electricity)o … 3rd industrial revolution GPT innovation (ICT)Econometric IV approach

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3. Factors of TFP growth3.2. The data

Average age of capital equipment (In years) - Whole economySource: Bergeaud, Cette and Lecat (2014)

1890

1896

1902

1908

1914

1920

1926

1932

1938

1944

1950

1956

1962

1968

1974

1980

1986

1992

1998

2004

2010

3

4

5

6

7

8

9

10

United States Euro Area United Kingdom Japan

14

1870

1877

1884

1891

1898

1905

1912

1919

1926

1933

1940

1947

1954

1961

1968

1975

1982

1989

1996

2003

2010

0

2

4

6

8

10

12

14


Average years of studies of the working age population (In years)Whole economySource: Van Leewen and Van Leewen-Li (2014)


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Electricity production per capita - Whole economy Source: Bergeaud, Cette, Lecat (2015)

1870

1876

1882

1888

1894

1900

1906

1912

1918

1924

1930

1936

1942

1948

1954

1960

1966

1972

1978

1984

1990

1996

2002

2008

0

2

4

6

8

10

12

14

16



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ICT share in capital equipment – Current value (In %)Source: Bergeaud, Cette, Lecat (2016)

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

0

2

4

6

8

10

12

United states Euro area United kingdom Japan


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Average annual growth rate of TFP, TFP’ and TFP’’ in the United States (In %)Smoothed indicator (HP filter, λ = 500) - Whole economySource: Bergeaud, Cette and Lecat (2016)

3. Factors of TFP growth 3.3. Results

1890

1898

1906

1914

1922

1930

1938

1946

1954

1962

1970

1978

1986

1994

2002

2010

-0.50

0.51

1.52

2.53

3.54

TFP

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o Among factor quality indicators: education levels have the largest contribution to growth, age of capital has a significant, albeit limited role

1890

1898

1906

1914

1922

1930

1938

1946

1954

1962

1970

1978

1986

1994

2002

2010

-0.50

0.51

1.52

2.53

3.54

TFP TFP'

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o Among factor quality indicators: education levels have the largest contribution to growth, age of capital has a significant, albeit limited role

o Among technology shocks, electricity has the largest contribution; ICT contribution is limitedo All adjustments proposed amount to less than half of TFP growth

1890

1898

1906

1914

1922

1930

1938

1946

1954

1962

1970

1978

1986

1994

2002

2010

-0.50

0.51

1.52

2.53

3.54

TFP TFP' TFP''

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4. Concluding remarks4.1. Takeaways

TFP growth waves: main driver of LP and GDP growth waves TFP growth waves and recent TFP growth decline only partly explained by

factor quality adjustment and by technology impact measurementDifficult diagnosis concerning the supply side Risk of Secular Stagnation

Factor quality measurement and technology shock measurement are still problematicMismeasurement of price decline of capital goods => Mismeasurement of capital-deepening and consequently of TFP

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4. Concluding remarks4.2. A more complete story

Long-term productivity slowdown could be related to other factors For example real interest rates, see following Graph

See Cette, Fernald and Mojon (2016) Research program at the Banque de France:

Circular relation between TFP growth and real interest rates? Real interest rates + factor quality + (institutions, technology) => TFP growthTFP growth + other factors (demography …) => GDP growth => real interest ratesWithout technology shocks and adapted institutions, risk of Secular Stagnation

A part of TFP growth will remain unexplained, at least from externalities (“manna from heaven”)

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4. Concluding remarks

Real long-term interest rate (In %)10-year sovereign bondsSource: Jordà- Schularick-Taylor Macrohistory Database

19501953

19561959

19621965

19681971

19741977

19801983

19861989

19921995

19982001

20042007

20102013

0

2

4

6

8

10

12

14

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productivity and gdp per capita growth: a long-term perspective, bergeaud, cette & lecat

Economy & Finance