How Important Are Capital and Total Factor Productivity for Economic Growth?

FRB Atlanta Working Paper No. 2002-02

66 Pages Posted: 23 Feb 2002  

Scott L. Baier

Clemson University - John E. Walker Department of Economics

Gerald P. Dwyer

Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Robert Tamura

Clemson University - John E. Walker Department of Economics; Federal Reserve Bank of Atlanta

Multiple version iconThere are 2 versions of this paper

Date Written: March 2005

Abstract

The authors examine the relative importance of the growth of physical and human capital and the growth of total factor productivity (TFP) using newly organized data on 145 countries that span more than one hundred years for twenty-four of these countries. For all countries, only 3 percent of average output growth per worker is associated with TFP growth. This world average masks interesting variations across countries and regions. Of the nine regions, TFP growth accounts for about twenty percent of average output growth in three regions and between ten and zero percent in the other three regions. In three regions, TFP growth is negative on average. The authors use priors from theories to construct estimates of the relative importance of the variances of aggregate input growth and TFP growth for the variance of output growth across countries. Across all countries, variation in aggregate input growth per worker could account for as much as 35 percent of the variance of the growth of output per worker across countries, and variation in TFP growth could account for as much as 87 percent of that variance. Much of the importance of the variance of TFP growth appears to be associated with negative TFP growth.

Keywords: economic growth, capital, human capital, total factor productivity, growth accounting

Keywords: economic growth, total factor productivity, human capital

JEL Classification: O47, O50, O57, O30, N10

Suggested Citation

Baier, Scott L. and Dwyer, Gerald P. and Tamura, Robert, How Important Are Capital and Total Factor Productivity for Economic Growth? (March 2005). FRB Atlanta Working Paper No. 2002-02. Available at SSRN: https://ssrn.com/abstract=301213 or http://dx.doi.org/10.2139/ssrn.301213

Scott Leonard Baier

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-4534 (Phone)

Gerald P. Dwyer (Contact Author)

Clemson University ( email )

Department of Economics
Clemson University
Clemson, SC 29634
United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Robert Tamura

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-1242 (Phone)
864-656-4192 (Fax)

Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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