Measuring Productivity and Absorptive Capacity Evolution in OECD Economies

41 Pages Posted: 11 Sep 2017

See all articles by Stef De Visscher

Stef De Visscher

Ghent University

Markus Eberhardt

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)

Gerdie Everaert

Ghent University - Department of Social Economics

Date Written: August 2017

Abstract

We develop a new way to estimate cross-country production functions which allows us to parametrize unobserved non-factor inputs (total factor productivity) as a global technology process combined with country-specific time-varying absorptive capacity. The advantage of our approach is that we do not need to adopt proxies for absorptive capacity such as investments in research and development (R&D) or human capital, or specify explicit channels through which global technology can transfer to individual countries, such as trade, FDI or migration: we provide an endogenously-created index for relative absorptive capacity which is easy to interpret and encompasses potential proxies and channels. Our implementation adopts an unobserved component model and uses a Bayesian Markov Chain Monte Carlo (MCMC) algorithm to obtain posterior estimates for all model parameters. This contribution to empirical methodology allows researchers to employ widely-available data for factor inputs (capital, labor) and GDP or value-added in order to arrive at policy-relevant insights for industrial and innovation policy. Applying our methodology to a panel of 31 advanced economies we chart the dynamic evolution of global TFP and country-specific absorptive capacity and then demonstrate the close relationship between our estimates and salient indicators of growth-enhancing economic policy.

Keywords: absorptive capacity, common factor model, MCMC, time-varying parameters, total factor productivity, unobserved component model

JEL Classification: C21, C23, F43, F60, O33

Suggested Citation

De Visscher, Stef and Eberhardt, Markus and Everaert, Gerdie, Measuring Productivity and Absorptive Capacity Evolution in OECD Economies (August 2017). CEPR Discussion Paper No. DP12261, Available at SSRN: https://ssrn.com/abstract=3031898

Stef De Visscher (Contact Author)

Ghent University ( email )

Coupure Links 653
Gent, 9000
Belgium

Markus Eberhardt

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Gerdie Everaert

Ghent University - Department of Social Economics ( email )

Hoveniersberg 24
Gent, 9000
Belgium

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