Technological Change and Economic Performance

As discussed in previous chapters, there are several ways to measure productivity growth. Partial factor productivity indices and total factor productivity indices are the most commonly used measures. Both have their merits, as well as their shortfalls.

Two measurement issues are important when comparing productivity growth, assuming of course that inputs and output are correctly measured. First, cross-country comparisons assume that the same production function characterizes the industries in both countries. This assumption is somewhat less troublesome when comparing productivity among developed countries than when making comparisons between developed and undeveloped countries. Second, indices must be standardized for differences in the value of output between countries. However, the common practice of using exchange rates to convert the net output from one country to the currency of the other produces inaccurate estimates because exchange rates proxy relative purchasing power poorly. Therefore, cross-country comparisons so adjusted should be interpreted only as approximating of actual differences in productivity levels.

The data in Table 6.1 show decreases in the average rate of productivity growth in labor, capital, and total factor productivity in selected countries between the 1960-73 and 1973-9 time periods. Labor and total factor productivity growth between 1960 and 1973 was greatest in Japan, although the rates for Italy are nearly as large. Growth rates in Japan were, during that time period, larger than in the United States by more than a factor of three. Between 1973 and 1979, the highest rates of labor and total factor-productivity growth were not in Japan, but in Belgium, West Germany, and France. In each of the nine countries shown in the table, labor, capital, and total factor productivity growth rates were lower in the 1973-9 period than in the 1960-73 period; capital productivity growth was in fact negative in every country between 1973 and 1979.

More detailed international data on total factor productivity are presented in Table 6.2 for earlier and related time periods. These findings suggest that there was a decline in total factor productivity growth in all of the countries listed in the table beginning around 1973. There also appears to have been a decline in

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