Measuring productivity growth in Asia: do market imperfections matter?

Recent research reports contradictory estimates of productivity growth for the newly industrialized economies (NIEs) of Asia. In particular, estimates using real factor prices find relatively rapid TFP growth; estimates using quantities of inputs and output find relatively low TFP growth. The difference is particularly notable for Singapore, where the difference is about 2-1/4 percentage-points per year. We show that about 2/3 of that difference reflects differences in estimated capital payments. We argue that these differences reflect economically interesting imperfections in output and capital markets, including sizeable economic profits in Singapore and government-directed credit. We derive a measure of technology growth, corrected for the imperfections that we quantify.Asia ; Economic conditions ; Productivity

Measuring the miracle: market imperfections and Asia's growth experience

The newly industrialized economies (NIEs) of Asia are the fastest-growing economies in the world since 1960. A clear understanding of their rapid development remains elusive, with continuing disputes over the roles of technology growth, capital accumulation, and international trade and investment. We reconcile seemingly contradictory explanations by accounting for imperfections in output and capital markets. For instance, in Singapore, growth-accounting studies using quantities (the primal approach) find rising capital-output ratios and a constant labor share; but studies using real factor prices (the dual approach) find a constant user cost. We provide evidence that "favored" firms reaped economic profits and received preferential tax treatment, subsidies, and access to capital-- market imperfections that are difficult to capture when implementing the dual approach. Further, declining pure profits can reconcile the constant or rising labor shares in revenue in the NIEs with theories of international trade that predict falling labor shares in cost. We provide empirical support for the quantitative importance of profits and heterogeneous user costs, describe the two-sector dynamics, and derive measures of technology growth, corrected for the imperfections that we quantify. We then discuss implications for broader disputes about Asian development.Asia ; Economic conditions ; Productivity

Trade Adjustment and Productivity in Large Crises

We empirically characterize the mechanics of trade adjustment during the Argen- tine crisis using detailed transaction-level customs data covering the universe of import transactions during 1996-2008. Though imports collapsed by nearly 70 percent from 2000-2002, the entry and exit of firms or products at the country level (the \extensive margin") played a small role in this adjustment. By contrast, the within-firm churning of inputs (the \sub-extensive margin") played a sizeable role, and we highlight significant heterogeneity in how firms adjusted their import mix. Motivated by these facts, we build a model of trade in intermediate inputs with heterogeneous firms, fixed import costs, and roundabout production to evaluate the channels through which a collapse in imports affects productivity. Import demand is non-homothetic and therefore the implications for productivity depend on the details of individual firm adjustments and cannot be summarized by the change in the aggregate import share. We simulate the model to discuss quantitatively these mechanisms in the context of an imported input cost shock that produces a significant productivity decline

Growth accounting with misallocation: Or, doing less with more in Singapore

We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain estimates of aggregate and sectoral technology growth as well as reallocation effects. We also apply our framework to reconcile divergent TFP estimates in Singapore and to resolve other empirical puzzles regarding Asian development.Industrial productivity ; Productivity ; Technology ; Singapore

The impact of post-9/11 visa policies on travel to the United States

This paper examines the impact of post-9/11 changes in visa and security policy on business and leisure travel to the United States. American businesses, tourism industry representatives, and politicians pointed to changes in visa policies as being responsible for a sharp decline in short-term visitors following the September 11 attacks. Several foreign governments likewise complained that visa requirements and other security measures were making it difficult for their citizens to travel to the United States. Using an empirical model which distinguishes the impact of visa policy from economic and country-specific factors, we find that changes in visa policy in the aftermath of 9/11 were not important contributors to the decrease in travel to the United States. Rather, the reduction in entries was largest among travelers who were not required to obtain a visa.Visa Policy; Differences-in-differences; Economics of National Security

Trade Prices and the Global Trade Collapse of 2008-2009

We document the behavior of trade prices during the Great Trade Collapse of 2008-2009 using transaction-level data from the U.S. Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed. Third, the frequency and magnitude of price adjustments at the product level changed with the onset of the crisis, consistent with a state-dependent view of price adjustment. The quantitative magnitudes of the changes, however, were not pronounced enough to affect aggregate prices. Our findings present a challenge for theories of the trade collapse based on cost shocks specific to traded goods that work through prices.

A State-Dependent Model of Intermediate Goods Pricing

Recent analyses of transaction-level datasets have generated new stylized facts on price setting and greatly influenced the empirical open- and closed-economy macroeconomics literatures. This work has uncovered marked heterogeneity in price stickiness, demonstrated that even non-zero price changes do not fully "pass through" exchange rate shocks, and offered evidence of synchronization in the timing of price changes. Further, intrafirm prices have been shown to differ from arm's length prices in each of these characteristics. This paper develops a state-dependent model of intermediate goods pricing, which allows for arm's length and intrafirm transactions, and is capable of generating these empirical pricing patterns.

Trade Adjustment and Productivity in Large Crises

We empirically characterize the mechanics of trade adjustment during the Argentine crisis. Though imports collapsed by 70 percent from 2000-2002, the entry and exit of firms or products at the country level played a small role. The within-firm churning of imported inputs, however, played a sizeable role. We build a model of trade in intermediate inputs with heterogeneous firms, fixed import costs, and roundabout production. Import demand is non-homothetic and the implications of an import price shock depend on the full distribution of firm-level adjustments. An import price shock generates a significant decline in productivity.Economic

Trade and the global recession

The ratio of global trade to GDP declined by nearly 30 percent during the global recession of 2008-2009. This large drop in international trade has generated significant attention and concern. Did the decline simply reflect the severity of the recession for traded goods industries? Or alternatively, did international trade shrink due to factors unique to cross border transactions? This paper merges an input-output framework with a gravity trade model and solves numerically several general equilibrium counterfactual scenarios which quantify the relative importance for the decline in trade of the changing composition of global GDP and changes in trade frictions. Our results suggest that the relative decline in demand for manufactures was the most important driver of the decline in manufacturing trade. Changes in demand for durable manufactures alone accounted for 65 percent of the cross-country variation in changes in manufacturing trade/GDP. The decline in total manufacturing demand (durables and non-durables) accounted for more than 80 percent of the global decline in trade/GDP. Trade frictions increased and played an important role in reducing trade in some countries, notably China and Japan, but decreased or remained relatively flat in others. Globally, the impact of these changes in trade frictions largely cancel each other out.

Growth Accounting with Misallocation: Or, Doing Less with More in Singapore

We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain estimates of aggregate and sectoral technology growth as well as reallocation effects. We also apply our framework to reconcile divergent TFP estimates in Singapore and to resolve other empirical puzzles regarding Asian development.