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economic growth at the industry level

By Dale W. Jorgenson and Kevin J. Stiroh

Abstract

The U.S. economy has expanded rapidly in recent years with total factor productivity – the source of growth most closely identified with technological gains – rising sharply since the mid-1990s. 1 This strong aggregate performance and the well-documented explosion of investment in computers and other high-tech equipment have led many to believe that the U.S. has experienced a permanent, technology-led growth revival. It is essential, however, to disaggregate estimates of economic growth to the industry level to understand the new trends in the U.S. economy. Productivity growth – the ability to produce more outputs from the same inputs – differs widely among industries. For the economy as a whole, negative productivity growth in one industry can offset positive productivity growth in another and Jorgenson (1990) shows a measure of productivity based solely on aggregate data is valid only under very stringent conditions. We avoid the limitations of an aggregate measure of productivity by decomposing U.S. growth across industries for the period 1958 to 1996. By breaking down the U.S. economy into 37 industries (35 private industries, Private Households, and General Government), we identify the contribution of each industry to aggregate productivity growth. This enables us to isolate the underlying sources of gains in productivity and provides a better understanding of the forces driving the U.S. economy. Economy-wide productivity from an aggregate production function increased 0.45 percent per year for 1958-96, while methodology developed by Evsey Domar (1961) for aggregating over industries yields an aggregate estimate of 0.48 percent. Over the same period, however, industry productivity growth ranged from 1.98 percent in Electronic and Electric Equipment to –0.52 percent in Government Enterprises, highlighting fundamental differences in technology and productivity growth across industries. These results show the aggregate production function provides a reasonable estimate of productivity trends over long periods, but also masks important differences among industries

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.197.6463
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