Long-Term Growth and Productivity Projections in Advanced Countries

29 Pages Posted: 24 Jan 2017

See all articles by Gilbert Cette

Gilbert Cette

Banque de France

Remy Lecat

Banque de France

Carole Ly-Marin

Banque de France

Date Written: January 2017

Abstract

In this period of high uncertainty about future economic growth, we have developed a growth projection tool for 13 advanced countries and the euro area at the 2100 horizon. This high uncertainty is reflected in the debate on the possibility of a ‘secular stagnation’, fuelled by the short-lived Information and Communication Technology (ICT) shock and the current low productivity and GDP growth in advanced countries. Our projection tool allows for the modelling of technology shocks, for different speeds of regulation and education convergence, with endogenous capital growth and TFP convergence processes. We illustrate the benefits of this tool through four growth scenarios, crossing the cases of a new technology shock or secular stagnation with those of regulation and education convergence or of absence of reforms. Over the 2015-2100 period, the secular stagnation scenario assumes yearly TFP growth of 0.6% in the US, leading to a 1.5% GDP growth trend. The technology shock scenario assumes that the third technological revolution will, in the US, provide similar TFP gains to electricity during the second industrial revolution, leading to a 1.4% TFP trend, to which we add a TFP growth wave peaking in 2040, and thus to an average GDP growth rate of 3% in the US. In non-US countries, GDP growth will depend on the implementation of regulation reforms, the increase in education and on the distance to the country-specific convergence target, namely the US, as well. Over the period 2015-2060, for the euro area, Japan and the United Kingdom, benefits from regulation and education convergence would amount to a 0.1 to 0.4 pp yearly growth rate depending on the initial degree both of rigidity and the TFP distance to the US.

Keywords: Growth, productivity, long-term projections, structural reforms, innovation, education

JEL Classification: O11, O33, O43, O47, O57

Suggested Citation

Cette, Gilbert and Lecat, Remy and Ly-Marin, Carole, Long-Term Growth and Productivity Projections in Advanced Countries (January 2017). Banque de France Working Paper No. 617, Available at SSRN: https://ssrn.com/abstract=2903986 or http://dx.doi.org/10.2139/ssrn.2903986

Gilbert Cette (Contact Author)

Banque de France ( email )

Paris
France

Remy Lecat

Banque de France ( email )

Paris
France

Carole Ly-Marin

Banque de France

Paris
France

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