Productivity and the Welfare of Nations

65 Pages Posted: 20 Apr 2016

See all articles by Susanto Basu

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Luigi Pascali

Boston College

Fabio Schiantarelli

Boston College - Department of Economics; IZA Institute of Labor Economics

Luis Servén

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2012

Abstract

This paper shows that the welfare of a country's representative consumer can be measured using just two variables: current and future total factor productivity and the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of market competition. It applies to open economies as well, if total factor productivity is constructed using domestic absorption, instead of gross domestic product, as the measure of output. It also requires that total factor productivity be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates and they will typically sum to less thanone. These results are used to calculate welfare gaps and growth rates in a sample of developed countries with high-quality total factor productivity and capital data. Under realistic scenarios, the U.K. and Spain had the highest growth rates of welfare during the sample period 1985-2005, but the U.S. had the highest level of welfare.

Keywords: Economic Theory & Research, Currencies and Exchange Rates, Environmental Economics & Policies, Debt Markets, Emerging Markets

Suggested Citation

Basu, Susanto and Pascali, Luigi and Schiantarelli, Fabio and Servén, Luis, Productivity and the Welfare of Nations (April 1, 2012). World Bank Policy Research Working Paper No. 6026, Available at SSRN: https://ssrn.com/abstract=2034785

Susanto Basu (Contact Author)

Boston College, College of Arts and Sciences, Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Luigi Pascali

Boston College ( email )

140 Commonwealth Avenue
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Fabio Schiantarelli

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-4512 (Phone)
617-552-2308 (Fax)

HOME PAGE: http://https://sites.google.com/a/bc.edu/fabio-schiantarelli/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Luis Servén

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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