Academic journal article National Institute Economic Review

Growth and Productivity Accounts from EU KLEMS: An Overview

Academic journal article National Institute Economic Review

Growth and Productivity Accounts from EU KLEMS: An Overview

Article excerpt

This paper gives an overview of the construction of and preliminary results from the EU KLEMS database which contains industry estimates of output, input and productivity growth for EU countries. The paper begins with a discussion of methodology and data sources covering output and intermediates, capital and labour services. The content and scope of the database is then briefly described. This is followed by a discussion of preliminary results focusing on comparisons between the EU and US. These confirm the relatively poor productivity performance of the EU relative to the US since the mid-1990s, mostly driven by low productivity growth in market services.

Keywords: Productivity; growth accounting; national accounts JEL Classifications: D24; E01; J24

1. Introduction (1)

The EU KLEMS Growth and Productivity Accounts described in this paper include measures of output growth, employment and skill creation, capital formation and multi-factor productivity (MFP) at the industry level for European Union member states from 1970 onwards. The input measures include various categories of capital (K), labour (L), energy (E), material (M) and service inputs (S). Thus the data are ideally suited to the study of the relationship between skill formation, investment, technological progress and innovation on the one hand, and productivity, on the other. A major advantage of growth accounts is that they are embedded in a clear analytical framework rooted in production functions and the theory of economic growth. They provide a conceptual framework within which the interaction between variables can be analysed, which is of fundamental importance for policy evaluation. The measures are developed for individual European Union member states, and are linked with 'sister'-KLEMS databases in the US and Japan.

The purpose of constructing the database is to support empirical and theoretical research in the area of economic growth and productivity and to inform policy which requires comprehensive measurement tools to monitor and evaluate progress. The construction of the database should also support the systematic production of high quality statistics on growth and productivity using the methodologies of national accounts and input-output analysis.

The layout of the paper is as follows. First we provide an overview of the growth accounting methodology underlying the analysis (section 2). This is followed by a discussion of the data sources and measurement methods (section 3). Section 4 presents an overview of the key characteristics of the database and the variables, country and industry coverage--essentially a user's guide. In section 5 we present an analysis of some of the major trends observed from the March 2007 release of the database. This brief overview paper will in due time be followed by more extensive reviews and research papers, which will also be available from the EU KLEMS website (http:// www.euklems.net). This site also contains more information on the methodology used in EU KLEMS--the document EU KLEMS Growth and Productivity Accounts, Version 1.0, PART I Methodology--with detailed source descriptions given in the document PART II Sources.

2. Growth accounting methodology

2.1 General framework

In this section we summarise the methodology used to develop our measures of industry-level total factor productivity growth. We begin with the industry-level production function and show how this allows us to quantify the sources of output growth. In general, we follow the growth accounting methodology as developed by Dale Jorgenson and associates as outlined in Jorgenson, Gollop and Fraumeni (1987) and more recently in Jorgenson, Ho and Stiroh (2005). We follow their notation as closely as possible. The method is based on production possibility frontiers where industry gross output is a function of capital, labour, intermediate inputs and technology, which is indexed by time, t. …

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