Utilization-Adjusted TFP Across Countries: Measurement and Implications for International Comovement
50 Pages Posted: 3 Mar 2020 Last revised: 2 Nov 2020
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Utilization-Adjusted TFP Across Countries: Measurement and Implications for International Comovement
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 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 quantify the roles of both TFP and utilization for international business cycle comovement. Utilization-adjusted TFP is virtually uncorrelated across countries, and does not generate much GDP comovement through its propagation. Shocks to factor utilization can more successfully account for international comovement.
JEL Classification: F41, F44
Suggested Citation: Suggested Citation