LEC8 A theory of TFP

LEC8 A theory of TFP - Macroeconomic Policy Class Notes...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Macroeconomic Policy Class Notes Long run growth 4: A theory of TFP Revised: October 24, 2011 Latest version available at www.fperri.net/teaching/macropolicyf11.htm In the previous class we established that TFP and TFP growth are prerequisites for returns to capital, factors accumulation and growth. In this class we briefly explore what are then the determinants of TFP. The first order determinant of TFP is technological discoveries that make existing capital and labor more productive. For example think about the invention of the compass. Without the compass 10 sailors and a ship are capable of producing only a limited amount of shipping services as they will get lost very easily. When the compass is created the same 10 sailors and the same ship are going to be able to produce much more shipping services. More recently think of the invention of the Google search algorithm. Technological innovations are a very important driver of TFP growth in developed economies (like US). Figure 1 for example shows the some estimates contribution of information technology to labor productivity (note that labor productivity is different from total factor productivity) in the US. To give you a reference on the magnitude of those numbers the increase in labor productivity is larger than the one that the steam engine brought in UK during the industrial revolution. How about in developing countries? Developing countries should have an advantage over developed countries as they should be able to adopt more advanced technology from more advanced countries, without the need of reinventing it. Indeed in figure 2 below we see that countries that reached a certain income level (2000 1990US$) late in the current century were able to double their income at a much faster rate than countries that reached the same level the previous century. US for example reached the level in 1860 but it took more than 40 years to double that level as improvements in productivity were obtained only through technological discoveries. Taiwan instead was able to double the income from 2000 to 4000 in less than 10 years because it was able to increase productivity by adopting better technology that were already around.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
A theory of TFP 2 Source: Oliner and Sichel (2003) ICT Contribution to US Labour Productivity Growth (% points per year) 00 . 511 . 52 1974-90 1991-95 1996-2002 Figure 1: The contribution of information technology to US labor productivity Figure 2: Years to double GDP Yet we have seen many examples of many developing countries where TFP (and
Background image of page 2
A theory of TFP 3 returns to capital) is much lower than in developed countries and most importantly it fails to grow. Why does this happen? We will consider several possible explanations. Lack of competition Competition usually leads to the adoption of the lowest cost technology, i.e. the technology with the highest TFP. When there is no competition, either because gov- ernment regulation or other causes, an inferior technology might be used.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/22/2012 for the course ECON 8106 taught by Professor Staff during the Spring '08 term at Minnesota.

Page1 / 8

LEC8 A theory of TFP - Macroeconomic Policy Class Notes...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online