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| Q1: What is the US growth pattern according to Kuznets' findings? |
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InputDate: 7/9/2006 |
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| Reference: Hayami, Yujiro. Development Economics, From the Poverty to the Wealth of Nations, Second Edition, Oxford University Press. p140-142 | |||
| A: Application of this analysis to US economic growth was pioneered by Moses Abramovits (1956) and Robert Solow (1957), followed by many other studies on the growth process of advanced industrial economies within the past 100 years. Results of these studies presented a major challenge to the conventional view that capital accumulation is the engine of economic growth. |  |
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In Western Europe and North America, 99 per cent of per capita income growth is coming from TFP growth |
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The central message of growth-accounting analysis is illustrated by the following calculation by Kuznets (1966: 79-85). He summarized that in advanced industrial economies (in WesternEurope and North America) for fifty to 100 years (ending in the middle of 20th century), the average growth rates of real income per capita rangedd mostly from 1 to 2 per cent per year wuth an average of about 1.5 per cent. Meanwhile, the average number of work hoours per capita decreased by about 0.3 per cent per year. The capital output ratio (K/Y) declined by about 30 per cent for the whole period. This means that the per capita rate of growth in capital should have been 70 per cent of the per capital income growth rate, namely about 1 per cent per year (1.5per cent X 0.7). The income share of labour and capital in advanced economies are typically 0.75 and 0.25 respectively. If those average figures are applied to growth accounting equation, the contribution of capital to growth in per capita income is given as bG(K/N) = 0.25 X 1.0 = 0.25% which is only 17 per cent of the average growth rate of income per capita (1.5 per cent). On the other hand, lanour's contribution calculated as aG(L/N) = 0.75 x (-0.3) = -0.23% takes a negative value. Adding both contributions together estimates a contribution of growth of "total inputs" (or aggregate of labour and capital inputs) to total income growth of only 0.02 per cent. This means that 99 per cent of real per capita income growth resulted from growth in TFP. |
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80 per cent of labour productivity growth was contributed by TFP growth |
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| A similar calculation using equation (2) shows that only about 20 per cent of labour productivity growth was accounted for by the growth of the capital-labour ratio and the 80 per cent balance was contributed by TFP growth | |||
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Comon trands in increasing labour productivity and decrease in capital-output ratio |
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| Results of such calculations differ across countries and over time. However, the basic conclusion remains the same: that the contribution of TFP to real income growth was far more important than that of factor inputs. This is evident in the cases of five advanced economies as summarized by Kuznets \9shown in table). In this table, the average growth rates per year of real income (column 1), labour in work hours (column 2), and capital stock (column 3) are shown. From these data common trands in advanced economies are observable; real income grew faster than labour input, implying increase in labour productivity, and capital stock grew faster than labour input but slower than real income, resulting in decrease in the capital-output ratio. | |||
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TFP contribution exceed 90 per cent of the peer capita income growth |
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| Labour (column 2) and capital (column 3) are aggregated with factor share weights into total input contribution (column 4), which is subtracted from real income (column 1) to produce total productivity (column 5). The growth rate of total factor productivity relative to those of income per capita are found to exceed 90 per cent on the average (column 8). These are consistent with the illustrative calculations by Kuznets mentioned above | |||
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| Reference: | |||
| Abramovits, M.(1956). Resources and Output Trands in the United States since 1870, American Economic Review, 46 (Dec.) (Supplement):5-23. | |||
| Kuznets, S. (1966). Modern Economic Growth: Rate, Structure and Spread (New Have Yale University Press). | |||
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| Contributed by: mk Rating: 3 | |||
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Previous Item| Q2: What is the policy implecation of Kuznets findings? |
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InputDate: 7/9/2006 |
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| Reference: Hayami, Yujiro. Development Economics, From the Poverty to the Wealth of Nations, Second Edition, Oxford University Press. p144 | |||
| A: Such results urged a shift in development paradigm. |  |
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Poor countries with low saving ratio can grow by borrowing technologies |
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| If the major underlying force of economic growth is not the accumulation of tangible capital as coventionally measured, but technological progress (broadly defined in terms of TFP), then even poor economies with low-saving capacies might be able to achieve high rates of growth by borrowing technologies from advanced economies. | |||
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Education and R&D become moree important |
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| It could be more effective for them to invest in education, research, and development (in support of private entrepreneurss' innovative activities, including borrowing foreign technology) to accelerate their economic growth than merely try to increase their stock of tangible capital through command and planning by the government. | |||
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| Contributed by: mk Rating: 3 | |||
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