Investment-Specific and Multifactor Productivity in Multi-Sector Open Economies: Data and Analysis

34 Pages Posted: 4 Apr 2005

See all articles by Luca Guerrieri

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies

Dale W. Henderson

Federal Reserve Board

Jinill Kim

Korea University

Date Written: February 2005

Abstract

In the last half of the 1990s, labor productivity growth rose in the U.S. and fell almost everywhere in Europe. We document changes in both capital deepening and multifactor productivity (MFP) growth in both the information and communication technology (ICT) and non-ICT sectors. We view MFP growth in the ICT sector as investment-specific productivity (ISP) growth. We perform simulations suggested by the data using a two-country DGE model with traded and nontraded goods. For ISP, we consider level increases and persistent growth rate increases that are symmetric across countries and allow for costs of adjusting capital-labor ratios that are higher in one country because of structural differences. ISP increases generate investment booms unless adjustment costs are too high. For MFP, we consider persistent growth rate shocks that are asymmetric. When such MFP shocks affect only traded goods (as often assumed), movements in 'international' variables are qualitatively similar to those in the data. However, when they also affect nontraded goods (as suggested by the data), movements in some of the variables are not. To obtain plausible results for the growth rate shocks, it is necessary to assume slow recognition.

Keywords: Technology shocks, technical change, dynamic general equilibrium, learning, Harrod-Balassa-Samuelson Effect, nontraded goods

JEL Classification: D83, F43, O41

Suggested Citation

Guerrieri, Luca and Henderson, Dale W. and Kim, Jinill, Investment-Specific and Multifactor Productivity in Multi-Sector Open Economies: Data and Analysis (February 2005). FRB International Finance Discussion Paper No. 828. Available at SSRN: https://ssrn.com/abstract=681410 or http://dx.doi.org/10.2139/ssrn.681410

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2550 (Phone)

Dale W. Henderson (Contact Author)

Federal Reserve Board ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2343 (Phone)
202-736-5638 (Fax)

Jinill Kim

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701

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