Firm Growth, Financial Constraints, andPolicy-Based Finance

The average labor productivity, ALP, growth rates have declined among developed countries since around 2005. We argue that the declines were caused by the universal technological stagnation, which is reflected in the relative investment price movements. In the last decade, the declines of the relative investment prices have slowed down among developed countries, which was largely driven by equipment prices. We construct a multi-capital growth model and apply a growth accounting decomposition in order to back out the technology of each asset class. Our analysis reveals that the estimated technological stagnation of equipment greatly explains the declines of the ALP growth rate across the developed countries. Technological stagnation is especially severe for the US and explains 77% of the decline of the ALP growth rate after 2005.