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How Important is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries?

Author

Listed:
  • Konstantins Benkovskis

    (Bank of Latvia)

  • Ludmila Fadejeva

    (Bank of Latvia)

  • Robert Stehrer
  • Julia Woerz

Abstract

The evolution of total factor productivity (TFP) is a key determinant of long-run economic growth of a country. In this paper we analyse the contributions from technological change at the industry level to an economy's aggregate growth performance. Our derivation of total TFP growth entails three major improvements over the traditional Solow residual approach. First, we allow for non-constant returns to scale as well as changes in the utilisation of input factors in our estimation of industry TFP growth. Second, we use a novel approach to aggregate TFP from industry level to macro level, which incorporates both direct and indirect effects through intermediate linkages within an economy. Third, we take account of open economy characteristics by assigning an explicit role to terms-of-trade shocks. Our calculations for the sample of 10 Eastern European EU Member States over the time period from 1995 to 2009 are based on the newly available World Input-Output Database (WIOD).

Suggested Citation

  • Konstantins Benkovskis & Ludmila Fadejeva & Robert Stehrer & Julia Woerz, 2012. "How Important is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries?," Working Papers 2012/05, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:201205
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    1. Konstantins Benkovskis & Ludmila Fadejeva & Julia Wörz, 2013. "How Important Is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-27.
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    7. Ms. Ratna Sahay & Mr. Jeromin Zettelmeyer & Mr. Eduardo Borensztein & Mr. Andrew Berg, 1999. "The Evolution of Output in Transition Economies: Explaining the Differences," IMF Working Papers 1999/073, International Monetary Fund.
    8. Marcel Timmer & Abdul A. Erumban & Reitze Gouma & Bart Los & Umed Temurshoev & Gaaitzen J. de Vries & I–aki Arto & Valeria Andreoni AurŽlien Genty & Frederik Neuwahl & JosŽ M. Rueda?Cantuche & Joseph , 2012. "The World Input-Output Database (WIOD): Contents, Sources and Methods," IIDE Discussion Papers 20120401, Institue for International and Development Economics.
    9. Basu, Susanto & Fernald, John G. & Shapiro, Matthew D., 2001. "Productivity growth in the 1990s: technology, utilization, or adjustment?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 117-165, December.
    10. Joze P. Damijan & Boris Majcen, 2001. "Recovery and Growth in the Manufacturing Sectors of CEE Transition Economies: Short and Long-Term Efficiency Improving Factors," wiiw Balkan Observatory Working Papers 12, The Vienna Institute for International Economic Studies, wiiw.
    11. Gábor Kátay & Zoltán Wolf, 2008. "Driving Factors of Growth in Hungary - a Decomposition Exercise," MNB Working Papers 2008/6, Magyar Nemzeti Bank (Central Bank of Hungary).
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    13. Ludmila Fadejeva & Aleksejs Melihovs, 2010. "Measuring Total Factor Productivity and Variable Factor Utilization," Eastern European Economics, Taylor & Francis Journals, vol. 48(5), pages 63-101, September.
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    15. Charlotta Groth & Soledad Nuñez & Sylaja Srinivasan, 2006. "Productivity growth, adjustment costs and variable factor utilisation: the UK case," Bank of England working papers 295, Bank of England.
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    Cited by:

    1. POPKOVA, Elena, 2014. "New Prospects Of Economic Growth In Context Of Underdevelopment Whirlpools Phenomena," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(1), pages 5-20.
    2. Agnieszka Gehringer & Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann Danzinger, 2016. "What are the drivers of total factor productivity in the European Union?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 25(4), pages 406-434, June.
    3. Konstantins Benkovskis & Ludmila Fadejeva & Julia Wörz, 2013. "How Important Is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-27.

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    More about this item

    Keywords

    total factor productivity; terms of trade; utilisation; input-output table; Central; Eastern and Southeastern Europe;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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