Utilization-Adjusted TFP Across Countries: Measurement and Implications for International Comovement

38 Pages Posted: 2 Mar 2020

See all articles by Zhen Huo

Zhen Huo

Yale University - Department of Economics

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics

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Date Written: February 2020

Abstract

This paper develops estimates of TFP growth adjusted for movements in unobserved factor utilization for a panel of 29 countries and up to 37 years. When factor utilization changes are unobserved, the commonly used Solow residual mismeasures actual changes in TFP. We use a general equilibrium dynamic multi-country multi-sector model featuring variable factor utilization to derive a production function estimating equation that corrects for unobserved factor usage. We compare the properties of utilization-adjusted TFP series to the standard Solow residual, and discuss the implications for international business cycle comovement generated by technology shocks. Unlike the Solow residual, utilization-adjusted TFP is virtually uncorrelated across countries, and as a result its direct contribution to GDP comovement is negligible. A general equilibrium model calibrated to the observed levels of international trade cannot generate much comovement through propagation of these TFP shocks.

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Suggested Citation

Huo, Zhen and Levchenko, Andrei A. and Pandalai-Nayar, Nitya, Utilization-Adjusted TFP Across Countries: Measurement and Implications for International Comovement (February 2020). NBER Working Paper No. w26803, Available at SSRN: https://ssrn.com/abstract=3547152

Zhen Huo (Contact Author)

Yale University - Department of Economics ( email )

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Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

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