Economics Essay Examples

Why has OECD TFP growth been so much slower in the 1990's than in the 1960's?

TFP (total factor productivity) growth is calculated as the residual from the growth accounting form of the Solow-Swan model, and as a mathematical function represents anything that changes the relationship between labour and capital, and GDP. It is clear from the statistics that TFP growth in the 1960's was significantly faster than in the in the 1990's, with decade averages falling across Europe and Japan from 2.6% and 4.9% respectively, to 0.7% and 1%. The USA here is a slight outlier. It did suffer a decline in TFP growth between the period - from 1.9% to 1.2% - but this is by far the smallest fall observed in the OECD. Further the USA has gone from the nation lowest ranked in TFP terms (in the 1960's) to that with the highest TFP growth in the 1990s. I will thus analyse in this essay the reasons for such a sizeable decline in TFP growth in Europe and Japan, and the reasons why the American experience has been broadly different.

In the academic literature 7 major explanations have been put forward for the high levels of 60's TFP growth. It will emerge that in fact it is the 1960's which is the unusual period of TFP growth, not the 1990's, and as such it is this that requires explanation, with the 1990's best seen as merely an absence of such exceptional circumstances.[…]

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