Recent Trends in Economic Activity and TFP in Italy With a Focus on Embodied Technical Progress

38 Pages Posted: 31 Jul 2019

Date Written: December 12, 2018

Abstract

In this paper we provide fresh evidence on TFP performance in the Italian economy since 1995, taking into account the changing composition of primary inputs across different capital goods and employment skills, as well as technical progress embodied in different vintages of the productive assets. We first estimate a technical depreciation rate by using individual data on Italian industrial firms. We then obtain an experimental measure of the capital stock adjusted for technical efficiency, by augmenting the standard depreciation rate by our own estimate of technical depreciation (about 5 per cent per year). Once we introduce our measure of capital stock in a standard growth accounting exercise, we find a less dismal performance of the Italian TFP than usually estimated. Focusing on the years between 2007 and 2016, the upward correction in TFP amounts to around 1.5 percentage points in the overall period for the total economy and to about 2.5 percentage points when only considering manufacturing. These findings shed a somewhat more positive light on future TFP developments in Italy, suggesting a more rapid increase of potential output than otherwise estimated. In addition, the efficiency of installed capital might soon return to growth, as the expected recovery of investment results in the replacement of old vintages with new and more technically advanced ones.

Keywords: TFP, technical progress, embodied technology

JEL Classification: O3, D24, L60

Suggested Citation

Mistretta, Alessandro and Zollino, Francesco, Recent Trends in Economic Activity and TFP in Italy With a Focus on Embodied Technical Progress (December 12, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1204, Available at SSRN: https://ssrn.com/abstract=3429186 or http://dx.doi.org/10.2139/ssrn.3429186

Alessandro Mistretta (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco Zollino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
12
Abstract Views
161
PlumX Metrics