Upload
carlos-mendez
View
220
Download
4
Embed Size (px)
DESCRIPTION
On the Determinants of Bolivia's Economic Growth: Production Puzzles
Citation preview
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
A Comparative Analysis On the Determinants of
Bolivia’s Economic Growth: Production Puzzles
(Master Thesis’s Chapters 2,3,4)
Carlos A. Mendez Guerrahttps://sites.google.com/site/carlosmendez777
Graduate School of International DevelopmentNagoya University
Novermber 8th, 2011
Carlos Mendez (GSID) Productivity Puzzles 1/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
Outline
1 Research Progress: What’s new?
2 Stochastic Trends and Production Parameters
3 Factor Accumulation and Productivity Growth
4 Investment and Productivity Determinants
5 Steps ahead
Carlos Mendez (GSID) Productivity Puzzles 2/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
Outline
1 Research Progress: What’s new?
2 Stochastic Trends and Production Parameters
3 Factor Accumulation and Productivity Growth
4 Investment and Productivity Determinants
5 Steps ahead
Carlos Mendez (GSID) Productivity Puzzles 3/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
Research Progress: What is new?
Results update based on new data sets: Extended Penn WorldTables V.( 4.0) and Penn World Tables V.(7.0)
New comparative analysis over time (46 years) and space (6countries).
New analytical chapters:
Chapter 2: Stochastic Trends and Production FunctionParametersChapter 4: Investment and Productivity Determinants
Carlos Mendez (GSID) Productivity Puzzles 4/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Outline
1 Research Progress: What’s new?
2 Stochastic Trends and Production Parameters
3 Factor Accumulation and Productivity Growth
4 Investment and Productivity Determinants
5 Steps ahead
Carlos Mendez (GSID) Productivity Puzzles 5/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Fitting a Geometric Growth Process
yt = y0egt ⇒ ln(yt) = ln(y0) + gt + ǫ
9.5
1010
.511
ln(J
AP
AN
’s G
DP
per
wor
ker)
JAPAN: g=2.6%*** R2=0.86; BOLIVIA: g=−0.07% R2=0.01 8.
88.
99
9.1
ln(B
OLI
VIA
’s G
DP
per
wor
ker)
1960 1970 1980 1990 2000 2010Year
95% CI Fitted values ln( GDP per worker)
Source: Author’s calculations using data from Penn World Tables V. 7.0
Carlos Mendez (GSID) Productivity Puzzles 6/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Stochastic Trends and Unit Roots
Why a deterministic linear trend is not measurable in thegrowth process of Bolivia?
Stochastic trends, structural breaks, steady state (povertytrap)?
If a stochastic trend is present, is it possible to indentifysignificant long term relations among macroeconomicvariables?
If macroeconomic variables like GDP or Investment have astochastic trend, then shocks to these variables havepermanent effects, whereas in traditional business cycle theorythe effect of shocks on real GDP would usually be consideredonly temporary.
Carlos Mendez (GSID) Productivity Puzzles 7/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Factor Shares and Production FunctionParameters
Economists have long studied labor and capital’s share ofnational income as indicators of income distribution.
Data availability of labor’s share has also been seen as offeringinsights into the shape of the aggregate production function.
Generally, studies of developed economies support the long-standing observation (Kaldor Fact) that factors’ shares ofnational income are relatively constant over time and acrosscountries.
However, looking at the data of developing countries,important differences are observable between thegeneralization of the Kaldor fact and the reported factorshares.
Discrepancy: Data vs Common wisdom
Carlos Mendez (GSID) Productivity Puzzles 8/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Is it a ‘Naive’ Calculation of the CapitalShare?
Capital Share = 1 - Labor Share.3
.4.5
.6.7
.8C
apita
l Sha
re in
Nat
iona
l Inc
ome
Acc
ount
s
1963 1973 1983 1993 2003year
Nat. Accounts (0.68) Nat. Accounts HPtrend (0.68)Kaldor Fact (1/3)
Source: Author’s calculations using data from the United Nations Data Base, Bolivia’s National Accounts MainAggregates
Carlos Mendez (GSID) Productivity Puzzles 9/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Reseach Questions
1 Do the main production aggregates of the Bolivian economycontain stochastic trends? If so , is it possible to identify longterm relationships among them ?
2 Considering the noticiable difference between the conventionalwisdom and the ‘naive’ capital share , what other estimates offactor shares can be considered to understand the distributionof income between capital and labor in Bolivia?
3 How can the Bolivian economy be characterized in terms ofreturns to scale and the degree of substitution between capitaland labor?
Carlos Mendez (GSID) Productivity Puzzles 10/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
A First Look at the Data
Levels Growth Rates
Mean Std. Dev. Min Max Mean Std. Dev. Min Max
GDP (Output) 2.0E+10 6.6E+09 1.1E+10 3.6E+10 2.69 3.96 -14.95 8.16Capital Stock 1.9E+10 4.8E+09 1.2E+10 3.0E+10 2.12 3.30 -4.95 11.54Labor 2.6.E+06 8.4.E+05 1.5.E+06 4.4.E+06 2.37 0.38 0.83 3.04Output/Labor 7,559 634 6,481 8,889 0.32 3.93 -16.80 6.33Capital/Labor 7,646 1,085 5,774 9,670 -0.24 3.33 -7.47 8.96Output/Capital 1.00 0.12 0.85 1.26 0.57 4.31 -18.23 8.43Capital/Output 1.01 0.12 0.79 1.18 -0.56 4.30 -8.54 17.72Investment/Labor 999 251 569 1,641 -0.19 20.42 -56.17 47.04
Source: Author’s calculations using data from Extended Penn World Tables V. 4.0
Carlos Mendez (GSID) Productivity Puzzles 11/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
2323
.524
24.5
log(
GD
P)
1963 1973 1983 1993 2003
year
−15
−10
−5
05
10
GD
P g
row
th r
ate
1963 1973 1983 1993 2003
year
23.2
23.4
23.6
23.8
2424
.2
log(
Cap
ital S
tock
)
1963 1973 1983 1993 2003
year
−5
05
1015
Cap
ital g
row
th r
ate
1963 1973 1983 1993 2003
year
Carlos Mendez (GSID) Productivity Puzzles 12/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
8.6
8.8
99.
2
log(
Cap
ital/L
abor
)
1963 1973 1983 1993 2003
year
−10
−5
05
10
Cap
ital/L
abor
gro
wth
rat
e
1963 1973 1983 1993 2003
year
−.2
−.1
0.1
.2
log(
Out
put/C
apita
l)
1963 1973 1983 1993 2003
year
−20
−10
010
Out
put/C
apita
l gro
wth
rat
e
1963 1973 1983 1993 2003
year
Carlos Mendez (GSID) Productivity Puzzles 13/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
−.2
−.1
0.1
.2
log(
Cap
ital/O
utpu
t)
1963 1973 1983 1993 2003
year
−10
010
20
Cap
ital/O
utpu
t gro
wth
rat
e
1963 1973 1983 1993 2003
year
6.4
6.6
6.8
77.
27.
4
log(
Inve
stm
ent L
abor
)
1963 1973 1983 1993 2003
year
−60
−40
−20
020
40
Inve
stm
ent/L
abor
gro
wth
rat
e
1963 1973 1983 1993 2003
year
Carlos Mendez (GSID) Productivity Puzzles 14/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Unit Root Tests
∆yt = α+ βyt−1 + δt +k∑
j=1
ζj∆yt−j + ǫt
Ho : There is a Stochastic TrendHo*: There is not a Stochastic Trend
Unit Root Tests
ADF PP DF-GLS KPSS* ZAGDP (Output) Not Reject Not Reject Not Reject Reject Ho* Not RejectCapital Stock Not Reject Not Reject Not Reject Reject Ho* Not RejectLabor Not Reject Not Reject Not Reject Reject Ho* Not RejectOutput/Labor Not Reject Not Reject Not Reject Reject Ho* Not RejectCapital/Labor Not Reject Not Reject Not Reject Reject Ho* Not RejectOutput/Capital Not Reject Not Reject Not Reject Reject Ho* Not RejectCapital /Output Not Reject Not Reject Not Reject Reject Ho* Not RejectInvestment/Labor Not Reject Not Reject Not Reject Reject Ho* Not Reject
Carlos Mendez (GSID) Productivity Puzzles 15/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Cointegration Analysis
Ho: The series are not cointegrated.H1: The series are cointegrated (Share the same stochastic trend).
ǫt = ln(Y
L)− β1ln(
K
L)− β0
∆ǫt = γǫt−1 +
k∑
j=1
ζj∆ǫt−j + vt
Engle-Granger 1st-step regressionDependent Variable: Ln(Output/Labor)
Coef. Std. Err. t-stat P-value 95% CI
Ln(K/L) 0.32 0.07 4.35 0.00 0.17 0.46Constant 6.10 0.65 9.38 0.00 4.79 7.41Augmented Engle-Granger test for cointegrationNumber of lags = 5 N (test) = 40
Test 1% Critical 5% Critical 10%CriticalStatistic Value Value Value
Z(t) -3.383 -3.585 -2.928 -2.602Critical values from MacKinnon (1990, 2010)
Reject Ho at 5% of significance ⇒ The series share the same stochastic trend
Carlos Mendez (GSID) Productivity Puzzles 16/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Cointegration Analysis
Ho: The series are not cointegrated.H1: The series are cointegrated (Share the same stochastic trends).
ǫt = ln(Y )− β1ln(K )− β2ln(L)− β0
Johansen test for cointegrationTrend: constant Number of obs = 41Sample: 1968-2008 Lags = 5Maximum Trace 5% Critical
Rank Parms LL Eigenvalue Statistic Value0 39 361.39 . 40.27 29.681 44 373.67 0.45 15.71 15.412 47 380.48 0.28 2.09* 3.763 48 381.53 0.05
Reject Ho at 5% of significance ⇒ The series share the samestochastic trend.
Carlos Mendez (GSID) Productivity Puzzles 17/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Cobb-Douglas Production Function
A Cobb-Douglass Production Function:
Y = AKαL1−α ; ∀ 0 ≤ α ≤ 1
Linearization of Equation 1:
Ln(Y ) = Ln(A) + αLn(K ) + (1− α)L
Econometric Model:
Ln(Y ) = Ln(A) + αLn(K ) + (1− α)L + ǫ
Econometric Problems:
1 Spurious regression due to stochastic trends
2 Autocorrelation
Carlos Mendez (GSID) Productivity Puzzles 18/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Estimation of the Cobb-Douglas Function
Dependent Variable: Ln GDPInitial Newey-West First PW-COBase Stand. Err. Differences GLS(1) (2) (3) (4)
Capital Share 0.5358*** 0.5358*** 0.3845** 0.4293***(0.0917) (0.1256) (0.1738 ) (0.1545)
Labor Share 0.5410*** 0.5410*** 1.1861 0.6229***(0.0500) (0.0685) (1.5399) (0.1297)
Tech. Change 0.0015 0.0016 0.0000 0.0022(0.0011) (0.0012) (0.0000) (0.0016)
Number of Observations 46 46 45 46Autocorrelation AnalysisDurbin-Watson statistic 0.3552 0.3552 1.82116 1.674114Breusch-Godfrey statistic 31.7260 na. 0.358 naBreusch-Godfrey test (p-value) 0.0000 na. 0.5498 naWhite noise test statistic 125.0869 19.0795White noise test (p-value) 0.0000 0.5167Number of Autocorrelations 2.0000 0
Carlos Mendez (GSID) Productivity Puzzles 19/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Hypothesis Testing under The Cobb-DouglasProduction Function
Dependent Variable: Ln GDPCointegration Newey-West PW-CO ConstrainedEngle-Granger Stand. Err. GLS ks + ls = 1
(0) (2) (4) (5) (6)Capital Share 0.3163*** 0.5358*** 0.4293*** 0.4611*** 0.3163***
(0.1131) (0.1256) (0.1545) (0.0425) (0.0618)Labor Share 0.5410*** 0.6229*** 0.5389*** 0.6836***
(0.0685) (0.1297) (0.0425) (0.0618)Tech. Change 0.0016 0.0022 0.0024
(0.0012) (0.0016) (0.0001)Constant 6.1015*** 6.1014***
(1.0096) (0.5509)Number of Observations 46 46 46 46 46
Hypothesis TestingHo: Constant Returns to Scale Not Applicable Not Rejected Not Rejected Constrained Constrained
Ho: Capital share =1/3 Not Rejected Not Rejected Not Rejected Rejected Not RejectedHo: Capital share =0.68 Rejected Not Rejected Not Rejected Rejected Rejected
Carlos Mendez (GSID) Productivity Puzzles 20/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
CES Production Function
A Constant Elasticity of Substitution (CES) production function:
y = γeλt [δK−ρ + (1− δ)L−ρ]−
νρ
Parameters:
γ: Productivity
λ: Technological Change
δ: Capital Share
ρ: Substituion
ν: Returns to scaleσ
1+ρ: Elasticity of substitution
Carlos Mendez (GSID) Productivity Puzzles 21/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Estimation of the CES Production Function
As the CES function is non-linear in parameters and cannotbe linearised analytically, it is not possible to estimate it withthe usual linear estimation techniques.
It can be estimated by non-linear least-squares using differentoptimization algorithms:
Gradient-based optimisation Global Op. Constraint Parameters
Parameter LM Conj. Newton BFGS N-M L-BFGS-B PORT
γ 0.0000 0.0000 475.6000 0.00 0.0400 0.0000 0.0000λ 0.0106 0.0150 0.0033 -0.99 -0.0850 -0.0960 -0.9850δ 0.8906 0.5000 0.2468 0.50 0.5400 0.5000 0.4968ρ 0.1349 0.2500 -0.1264 0.25 0.2900 0.2503 0.2530ν 0.7375 1.0000 0.9721 0.99 1.0400 1.0000 0.9913
Elasticity 0.88 0.80 1.15 0.80 0.78 0.80 0.80Convergence No Yes No Yes Yes No Yes
Carlos Mendez (GSID) Productivity Puzzles 22/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
A Summary of Factor Shares Estimates forBolivia
.32.68
.54
.54
.49.51
.54.46
.62.43
.67.33
.67.33
.68.32
0 .2 .4 .6 .8
National Accounts(Hptrend)
HAC Errors Regression Estimation
CES Production Function Estimation
Constrained Regression Estimation (No Constant)
PW−CO GLS Regression Estimation
Kaldor Fact
Bernanke and Gurkaynak (2001)
Constrained Regression Estimation (No Trend)
Capital Labor
Carlos Mendez (GSID) Productivity Puzzles 23/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Capital Share: A Comparative View
.55.44
.69
.56.35
.6
.62.32
.48
.43
.58.41
.62
.39.33
.68
0 .2 .4 .6 .8
Peru
Korea
Japan
Indonesia
Chile
Bolivia
PW−COBG(2001)
N.Acc
PW−COBG(2001)
N.Acc
PW−COBG(2001)
N.Acc
PW−COBG(2001)
N.Acc
PW−COBG(2001)
N.Acc
PW−COBG(2001)
N.Acc
Carlos Mendez (GSID) Productivity Puzzles 24/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Summary of Main Findings
The main production aggregates of the Bolivian economyseem to contain stochastic trends. Therefore, shocks to thesevariables might have permanent effects.It is possible to identify a significant and not spuriousrelationship among GDP, capital and labor.Cointegration techniques are useful to understand the longterm value of the capital share. They seem to support theKaldor fact that around 1/3 of the national incomecorrespond to capital gains.Labor share in national income increases drastically once therents of the non-corporate and self-employed labor areaccounted.The Bolivian economy might be characterized in terms ofconstant returns to scale in production, and low degree ofsubstitution between capital and labor.
Carlos Mendez (GSID) Productivity Puzzles 25/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Outline
1 Research Progress: What’s new?
2 Stochastic Trends and Production Parameters
3 Factor Accumulation and Productivity Growth
4 Investment and Productivity Determinants
5 Steps ahead
Carlos Mendez (GSID) Productivity Puzzles 26/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Need of Growth Accounting
Capitalism of State Neo−Liberalism IndigenousSocialism
Development Paradigm:
6500
7500
8500
9500
Oup
ut /
Labo
r R
atio
(G
DP
per
wor
ker
)
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
I II III IV
NationalRevolution
Sequel
Oil Boom andDebt Crisis
Hyper−Inflation and
Washington ConsensusRe−
Distribution
−15
−10
−5
05
(Oup
ut /
Labo
r) G
row
th R
ate
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Period:
Carlos Mendez (GSID) Productivity Puzzles 27/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Reseach Questions
1 What is the relative contribution of capital stock, labor andproductivity to GDP growth in Bolivia?
2 How is the behavior of Factor Accumulation (FA) and TotalFactor Productivity (TFP) in each of the developmentparadigms and historical periods of Bolivia?
3 What is the contribution of Human Capital improvements inthe process of economic growth in Bolivia?
Carlos Mendez (GSID) Productivity Puzzles 28/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Evolution of GDP, Capital and Labor
Period I
Period II
Period III
Period IV
11.
52
2.5
33.
5In
dex
1963
=1
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
GDP Index Capital Stock IndexLabor Stock Index
Carlos Mendez (GSID) Productivity Puzzles 29/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Growth Accounting Framework
A Cobb-Douglass Production Function:
Y = AKαL1−α ; ∀ 0 ≤ α ≤ 1 (1)
Linearization of Equation 1:
Ln(Y ) = Ln(A) + αLn(K ) + (1− α)L
Differentiating the previous equation respect to time, we obtain aGrowth Function in terms of the growth of inputs :
dLn(Y )
dt=
dLn(A)
dt+α
dLn(K )
dt+(1−α)
dLn(L)
dt=
A
A+α
K
K+(1−α)
L
L
Y
Y=
A
A+ α
K
K+ (1− α)
L
L(2)
Carlos Mendez (GSID) Productivity Puzzles 30/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Debate on the Capital Share
.32.68
.54
.54
.49.51
.54.46
.62.43
.67.33
.67.33
.68.32
0 .2 .4 .6 .8
National Accounts(Hptrend)
HAC Errors Regression Estimation
CES Production Function Estimation
Constrained Regression Estimation (No Constant)
PW−CO GLS Regression Estimation
Kaldor Fact
Bernanke and Gurkaynak (2001)
Constrained Regression Estimation (No Trend)
Capital Labor
Carlos Mendez (GSID) Productivity Puzzles 31/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Factor Accumulation Growth−
15−
10−
50
510
Gro
wth
Rat
e
1963 1973 1983 1993 2003year
GDP Growth Rate FA1 (ks=0.68)FA2 (ks=0.33) FA3 (ks=0.32)FA4 (ks=0.43) FA5 (ks=0.46)FA6 (ks=0.51) FA7 (ks=0.54)
Carlos Mendez (GSID) Productivity Puzzles 32/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Productivity Growth−
20−
100
10G
row
th R
ate
1963 1973 1983 1993 2003year
GDP Growth Rate TFP1 (ks=0.68)TFP2 (ks=0.33) TFP3 (ks=0.32)TFP4 (ks=0.43) TFP5 (ks=0.46)TFP6 (ks=0.51) TFP7 (ks=0.54)
Carlos Mendez (GSID) Productivity Puzzles 33/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Determinants: Capital, Labor andProductivity
−4
−2
02
46
Gro
wth
Rat
e
1963 1973 1983 1993 2003year
GDP Growth trend, HP corrected KC3trend,(ks=0.32) LC3trend,(ks=0.32) TFP3trend,(ks=0.32)
Carlos Mendez (GSID) Productivity Puzzles 34/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Trends: GDP, FA and TFP
GDP
FA
TFP
−4
−2
02
46
Gro
wth
Rat
e
1963 1973 1983 1993 2003year
Carlos Mendez (GSID) Productivity Puzzles 35/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Accounting (ks=0.32)
1.01
1.37
.46
.47
1.5
−.58
.62
1.72
.54
.69
1.88
1.87
.68
1.61
.43
−.6
−.1
.4.9
1.4
1.9
2.4
2.9
3.4
3.9
4.4
1963−1973 1974−1984 1985−2002 2003−2008 1963−2008
Capital Labor TFP
Carlos Mendez (GSID) Productivity Puzzles 36/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Accounting
ks=0.68 ks=0.33 ks=0.32 ks=0.43 ks=0.46 ks=0.51 ks=0.54(1) (2) (3) (4) (5) (6) (7)
Total Sample: 1963-2008GDP 2.69 2.69 2.69 2.69 2.69 2.69 2.69TFP 0.49 0.40 0.43 0.43 0.43 0.45 0.45K 1.44 0.70 0.68 0.91 0.98 1.08 1.15L 0.76 1.59 1.61 1.35 1.28 1.16 1.09
PERIOD I : National Revolution Sequel (1963-1973)GDP 2.96 2.96 2.96 2.96 2.96 2.96 2.96TFP 0.18 0.57 0.46 0.46 0.43 0.37 0.33K 2.14 1.04 1.01 1.35 1.45 1.61 1.70L 0.65 1.35 1.37 1.15 1.09 0.99 0.93
PERIOD II : Oil Boom and Debt Crisis (1974-1984)GDP 1.31 1.31 1.31 1.31 1.31 1.31 1.31TFP -0.40 -0.66 -0.58 -0.58 -0.56 -0.52 -0.50K 1.01 0.49 0.47 0.64 0.68 0.76 0.80L 0.71 1.48 1.50 1.26 1.19 1.08 1.02
Carlos Mendez (GSID) Productivity Puzzles 37/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Accounting
ks=0.68 ks=0.33 ks=0.32 ks=0.43 ks=0.46 ks=0.51 ks=0.54(1) (2) (3) (4) (5) (6) (7)PERIOD III: Hyper-Inflation and Washington Consensus (1985-2002)
GDP 2.82 2.82 2.82 2.82 2.82 2.82 2.82TFP 0.69 0.49 0.54 0.54 0.56 0.59 0.61
K 1.32 0.64 0.62 0.83 0.89 0.99 1.04L 0.81 1.69 1.72 1.44 1.37 1.24 1.16
PERIOD IV : Social Revolution (2003-2008)GDP 4.37 4.37 4.37 4.37 4.37 4.37 4.37TFP 2.02 1.81 1.87 1.87 1.88 1.91 1.93
K 1.47 0.72 0.69 0.93 1.00 1.11 1.17L 0.88 1.85 1.88 1.57 1.49 1.35 1.27
Carlos Mendez (GSID) Productivity Puzzles 38/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Human Capital Improvements
Index (1963=1)
Schooling, Secondary Complete, S>25
02
46
810
Ave
rage
Yea
rs o
f Sch
oolin
g (A
dult
Pop
ulat
ion,
S>
25)
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: Author’s calculations using data from Barro and Lee(2011)
Carlos Mendez (GSID) Productivity Puzzles 39/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Introducing Human Capital to the GrowthAccounting Framework
An extended Cobb-Douglass Production Function:
Y = AKα(HL)1−α ; ∀ 0 ≤ α ≤ 1 (3)
Linearization of Equation 3:
Ln(Y ) = Ln(A) + αLn(K ) + (1− α)L+ (1− α)H
Differentiating the previous equation respect to time, we obtain an extendedGrowth Function in terms of the growth of inputs :
dLn(Y )
dt=
dLn(A)
dt+ α
dLn(K )
dt+ (1− α)
dLn(L)
dt+ (1− α)
dLn(H)
dt
Y
Y=
A
A+ α
K
K+ (1− α)
L
L+ (1− α)
H
H(4)
Carlos Mendez (GSID) Productivity Puzzles 40/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Accounting with Human Capital(ks=0.32)
1.01
1.37
1.82
−1.23
.47
1.5
1.82
−2.48
.62
1.72
1.82
−1.34
.69
1.88
1.82
−.02
.68
1.61
1.82
−1.42
−2
02
4
1963−1973 1974−1984 1985−2002 2003−2008 1963−2008
Capital Labor Human Capital TFP
Carlos Mendez (GSID) Productivity Puzzles 41/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Accounting with Human Capital
ks=0.68 ks=0.33 ks=0.32 ks=0.43 ks=0.46 ks=0.51 ks=0.54(1) (2) (3) (4) (5) (6) (7)
Total Sample: 1963-2008GDP 2.69 2.69 2.69 2.69 2.69 2.69 2.69TFP -0.37 -1.39 -1.42 -1.10 -1.01 -0.86 -0.78K 1.44 0.70 0.68 0.91 0.98 1.08 1.15L 0.76 1.59 1.61 1.35 1.28 1.16 1.09H 0.86 1.79 1.82 1.52 1.44 1.31 1.23
PERIOD I : National Revolution Sequel (1963-1973)GDP 2.96 2.96 2.96 2.96 2.96 2.96 2.96TFP -0.68 -1.22 -1.23 -1.06 -1.02 -0.94 -0.89K 2.14 1.04 1.01 1.35 1.45 1.61 1.70L 0.65 1.35 1.37 1.15 1.09 0.99 0.93H 0.86 1.79 1.82 1.52 1.44 1.31 1.23
PERIOD II : Oil Boom and Debt Crisis (1974-1984)GDP 1.31 1.31 1.31 1.31 1.31 1.31 1.31TFP -1.26 -2.45 -2.48 -2.11 -2.00 -1.83 -1.73K 1.01 0.49 0.47 0.64 0.68 0.76 0.80L 0.71 1.48 1.50 1.26 1.19 1.08 1.02H 0.86 1.79 1.82 1.52 1.44 1.31 1.23
Carlos Mendez (GSID) Productivity Puzzles 42/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Growth Accounting with Human Capital
ks=0.68 ks=0.33 ks=0.32 ks=0.43 ks=0.46 ks=0.51 ks=0.54(1) (2) (3) (4) (5) (6) (7)PERIOD III: Hyper-Inflation and Washington Consensus (1985-2002)
GDP 2.82 2.82 2.82 2.82 2.82 2.82 2.82TFP -0.16 -1.31 -1.34 -0.98 -0.88 -0.72 -0.62K 1.32 0.64 0.62 0.83 0.89 0.99 1.04L 0.81 1.69 1.72 1.44 1.37 1.24 1.16H 0.86 1.79 1.82 1.52 1.44 1.31 1.23
PERIOD IV : Social Revolution (2003-2008)GDP 4.37 4.37 4.37 4.37 4.37 4.37 4.37TFP 1.16 0.02 -0.02 0.34 0.44 0.61 0.70K 1.47 0.72 0.69 0.93 1.00 1.11 1.17L 0.88 1.85 1.88 1.57 1.49 1.35 1.27H 0.86 1.79 1.82 1.52 1.44 1.31 1.23
Carlos Mendez (GSID) Productivity Puzzles 43/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Summary of Main Findings
From 1963 to 2008 factor accumulation, specially physicalcapital, has been the main determinant of economic growth inBolivia.
The trend of TFP is extremely volatile across differentmeasures of the capital share, and shows a clear cyclicalbehavior.
The behavior of TPF and Factor Accumulation has beensimilar before the hyper-inflation period but not after it.
The institutional reforms after the hyper-inflation periodpromoted capital accumulation but not TFP growth.
Human Capital improvements (exponential growth) mightaccount up to 52% of total growth. However, this value canbe questionable if human capital improvements are measuredin terms of outcomes rather than inputs.
Carlos Mendez (GSID) Productivity Puzzles 44/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Outline
1 Research Progress: What’s new?
2 Stochastic Trends and Production Parameters
3 Factor Accumulation and Productivity Growth
4 Investment and Productivity Determinants
5 Steps ahead
Carlos Mendez (GSID) Productivity Puzzles 45/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Capital is important, but what happened theK/L ratio?
−60
−40
−20
020
40G
row
th R
ate
1963 1973 1983 1993 2003year
Investment per Worker Growth RateCapital−Labor Ratio Growth Rate
Carlos Mendez (GSID) Productivity Puzzles 46/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
TFP behaviour in Bolivia
9010
011
012
0T
FP
Lev
el(1
963=
100)
1963 1973 1983 1993 2003year
Carlos Mendez (GSID) Productivity Puzzles 47/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Reseach Questions
1 Why investment does not seen to increase the capital-laborgrowth rate?
2 What factors can be indentified in order to explain thebehavior of the TFP in Bolivia?
Carlos Mendez (GSID) Productivity Puzzles 48/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Aggregate Investment
Period I
Period IIPeriod III
Period IV
2121
.522
22.5
Log
(Inv
estm
ent)
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Carlos Mendez (GSID) Productivity Puzzles 49/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Investment Share
Period I Period II Period III Period IV
−5
05
1015
20G
DP
Sha
re
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Investment ShareFDI Share
Carlos Mendez (GSID) Productivity Puzzles 50/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Accelerator Model
The ‘basic’ accelerator model:
K ∗
t = µYt (5)
Where Y is real GDP and µ is the fixed capital/output ratio.According to 5, not only does the optimal capital stock K ∗
t bear afixed factor of proportionality to output, but the capital stock isalways optimally adjusted in each time period, implying thatK ∗
t = Kt and therefore that net investment Int equals:
Int = Kt − Kt−1 = µ(Yt − Yt−1) (6)
Empirically equation 6 has not fared well do to the restrictiveinstantaneous adjustment assumption.
Carlos Mendez (GSID) Productivity Puzzles 51/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Flexible Accelerator Model
Relaxing the assumption of instantaneous adjustment, Koyck(1954) proposed a ‘flexible’ version of the accelerator model whichemphasized the adjustment costs of investment:
Int = λ(K ∗
t − Kt−1) = µ(Yt − Yt−1) (7)
where λ denotes the partial adjustment coefficient. Substitutingequation 5 into equation 7 yields:
Int = Kt − Kt−1 = λµYt − λKt−1 (8)
orKt = µλYt + (1− λ)Kt−1 (9)
Carlos Mendez (GSID) Productivity Puzzles 52/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Towards an Empirical Implementation of theFlexible Accelerator Model
The investment equation 8 is in terms of net investment.Assuming a constant depreciation rate δ, one can add replacementinvestment δKt−1 to both sides of equation 8 and obtain the grossinvestment formulation:
It = Kt − (1− δ)Kt−1 = λµYt + (δ − λ)Kt−1 (10)
Econometric Models:
It = α+ λµYt + (δ − λ)Kt−1 + ǫt (11)
It = α+
m−1∑
j=0
βiYt−i + βkKt−1 + ǫt (12)
Carlos Mendez (GSID) Productivity Puzzles 53/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Estimations of the Flexible AcceleratorModel
Dependent variable: Gross InvestmentModel (1) Model (2)
Basic Newey-West PW-CO PW-CO PW-CO PW-COCoefficients OLS Stand. Err. GLS GLS GLS GLS
(1) (2) (3) (4) (5) (6)β0 = λµ 0.16*** 0.16*** 0.21*** 0.20* 0.16 0.16
(0.03) (0.04) (0.05) (0.11) (0.12) (0.13)βk = δ − λ -0.09** -0.09 -0.16*** -0.17** -0.20** -0.21**
(0.05) (0.06) (0.07) (0.08) (0.10) (0.10)β1 0.02 -0.01 -0.02
(0.13) (0.14) (0.15)β2 0.10 0.09
(0.14) (0.15)β3 0.02
(0.14)α 1.1e+09*** 1.1e+09*** 1.4e+09** 1.5e+09** 1.5e+09** 1.6e+09**
(3.8e+08) (3.8e+08) (6.4e+08) (6.7e+08) (7.4e+08) (7.9e+08)R2 0.63 na 0.42 0.4 0.39 0.39N 45 45 45 45 44 43
Implied Ajustmentµ = 1.01
δ = 0.11λβ0 0.16*** 0.16*** 0.21*** 0.20* 0.16 0.16λβk 0.20** 0.20 0.27*** 0.28** 0.31** 0.32**
Carlos Mendez (GSID) Productivity Puzzles 54/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Accelerator Principle in theHarrod-Domar Model
Set up of the Harrod-Domar Model:
Y = cK (13)
MPK =dY
dK= c ⇒
dY
dK=
Y
K(14)
f (0) = 0 (15)
I = S = sY (16)
∆K = I − δK (17)
Operationalization : Taking logarithm and differentiating equation 13 respect to time,we obtain:
dLn(Y )
dt=
dLn(c)
dt+
dLn(K)
dt
∆Y
Y= 0 +
∆K
K(18)
Equilibrium :Replacing equation 18 into 17 we obtain:
∆Y
Y+ δ = s
Y
K= sMPK (19)
Carlos Mendez (GSID) Productivity Puzzles 55/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Estimating the Harrod-Dommar model: LowSavings Rate ⇒ Low Growth
Dependent Variable: GDP growth + Depreciation rateBasic Newey-West PW-CO
Coefficients OLS Stand. Err. GLS(1) (2) (3)
Savings Rate 13.81*** 13.81** 14.99***(4.70) (5.44) (5.37)
Constant -0.17 -0.17 -1.34(4.73) (5.82) (5.41)
R2 0.17 na. 0.16N 44 44 44
Actual average Investment Share = 13.15%
The actual investment (saving) rate is consistent with theBolivian growth proces ⇒ An investment (saving) rate of 13%might no be enough to produce higher growth in the Boliviancase.
Carlos Mendez (GSID) Productivity Puzzles 56/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Marginal Product of Capital (MPK)
Why the investment rate is low?
Ho: Because the return of investment (MPK) is low
Let’s go back again to the Harrod-Domar model:
∆Y
Y+ δ = s
Y
K= sMPK
Low savings rate s ⇒ Low Growth ∆YY
Low return to investment (MPK) ⇒ Low Growth ∆YY
Carlos Mendez (GSID) Productivity Puzzles 57/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
An attempt to estimate the MPK for Bolivia
∆Y
Y+ δ = s
Y
K= sMPK
Dependent Variable: GDP growth + Depreciation rateBasic Newey-West PW-CO
Coefficients OLS Stand. Err. GLS(1) (2) (3)
MPK 0.08 0.08 0.06(0.22) (0.27) (0.24)
Constant -12.60*** -12.60*** -12.86***(2.95) (3.99) (3.21)
Carlos Mendez (GSID) Productivity Puzzles 58/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Understanding the MPK
A Cobb-Douglass Production Function:
Y = AKαL1−α ; ∀ 0 ≤ α ≤ 1 (20)
One sector model:
MPK = αAKα−1L1−α = αY
K(21)
Multisector model:
MPK = αPyY
PkK(22)
Carlos Mendez (GSID) Productivity Puzzles 59/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Calculating the MPK for Bolivia
Based on Caselli and Ferrer (2005) data:
Initial Parameters
Total Capital Share 0.33Reproducible Capital Share 0.08Py/Pk 0.60
Marginal Product of Capital (MPK)
One Sector Multi Sector
Total 0.31 0.08Reproducible 0.19 0.05
Carlos Mendez (GSID) Productivity Puzzles 60/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
The Marginal Product of Capital (MPK) aComparative View
αT αR Py/Pk MPK(T1) MPK(Tm) MPK(R1) MPK(Rm)Bolivia 0.33 0.08 0.60 0.31 0.19 0.08 0.05Chile 0.41 0.16 0.90 0.26 0.24 0.10 0.09Peru 0.44 0.22 0.89 0.20 0.18 0.10 0.09
Singapore 0.47 0.38 1.19 0.15 0.18 0.12 0.14Botswana 0.55 0.33 0.66 0.36 0.24 0.22 0.14
Source: Caselli and Freirer (2005)
Carlos Mendez (GSID) Productivity Puzzles 61/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Determinants of Total Factor Productivity
Analytical Famework:
TFP=f(Cyclical variables, Policies, Institutions, InitialConditions)
Explanatory variables for TFP:
1 Terms of Trade (+ or -)
2 Real exchange rate appreciation (-)
3 Macroeconomic Instability (-)
4 Government Debt (-)
5 Civil liberties (+)
6 Democracy (+)
Carlos Mendez (GSID) Productivity Puzzles 62/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Variables for TFP analysis90
100
110
120
.
1980 1990 2000 2010.
TFP
−.2
0.2
.4.6
.8.
1980 1990 2000 2010.
Terms of Trade (log)
−10
0−
500
5010
0.
1980 1990 2000 2010.
REER Apreciation
0.2
.4.6
.81
.
1980 1990 2000 2010.
Macro Instability
5010
015
020
025
0.
1980 1990 2000 2010.
Gov. Debt/GDP
3.4
3.6
3.8
44.
2.
1980 1990 2000 2010.
Civil Liberties
2.5
33.
54
4.5
.
1980 1990 2000 2010.
Democracy Level
Carlos Mendez (GSID) Productivity Puzzles 63/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Econometric Implementation: ARDL Model
Based on Fuentes, Larrain and Schmidt Hebbel (2006):
ln(TFP)t = Ω(L)Xt +Θ(L)ln(TFP)t + ǫt (23)
Where L is the lag operator, Ω(L) and Θ(L) are lagpolynomials, and X is the vector of explanatory variablespresented previously. The estimation strategy of equation 23follows the general-to-particular approach (Hendry, 1995).
Since the dynamic structure in the relation between TFP andthe explanatory variables is unknown, the estimation usescontemporary and lagged values of the independent variablesand lagged values of the dependent variable (the logarithm ofthe TFP index, ln(TFP)).
Carlos Mendez (GSID) Productivity Puzzles 64/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Estimation of the Determinants of TFP
Dependendt Variable:Ln(TFP) with ks=0.32 Ln(TFP) with ks=0.68
(1) (2) (3) (4) (5) (6)Cyclical VariablesTerms of Trade 0.1060*** 0.1060*** 0.1143*** 0.1251** 0.1259** 0.1342**
(0.0335) (0.0333) (0.0356) (0.0582) (0.0595) (0.0619)Terms of Trade (t-1) -0.1072** -0.1068** -0.1059** -0.1433** -0.1408** -0.1420**
(0.0447) (0.0453) (0.0436) (0.0657) (0.0671) (0.0679)REER appreciation -0.0001 -0.0001 -0.0001 -0.0003* -0.0002* -0.0002*
(0.0004) (0.0001) (0.0001) (0.0004) (0.0001) (0.0001)REER appreciation (t-1) -0.0002 -0.0002 -0.0002 -0.0002 -0.0002 -0.0002
(0.0003) (0.0001) (0.0001) (0.0004) (0.0002) (0.0002)PoliciesMacro.Instability (t-1) -0.0522* -0.0532** -0.0515*** -0.0379 -0.0430* -0.0433*
(0.0285) (0.0195) (0.0175) (0.0300) (0.0234) (0.0228)Government Debt -0.00002 -0.00009
(0.0003) (0.0004)InstitutionsCivil liberties (t-2) 0.0403*** 0.0400*** 0.0433* 0.0406*
(0.0131) (0.0120) (0.0207) (0.0148)Democracy (t-2) 0.0250*** 0.0216***
(0.0056) (0.0074)Initial ConditionsTFP (t-1) 0.7922*** 0.7965*** 0.7852*** 0.7968** 0.8118*** 0.7943***
(0.0766) (0.0575) (0.0603) (0.0948) (0.0613) (0.0664)Constant 0.8121** 0.7918** 0.9007*** 0.7906* 0.7245** 0.8809***
(0.3734) (0.2856) (0.2811) (0.4202) (0.2851) (0.2972)Adjusted R squared 0.9493 0.9519 0.9590 0.9413 0.9437 0.9456SER 0.0054 0.0054 0.0046 0.0092 0.0093 0.0090Carlos Mendez (GSID) Productivity Puzzles 65/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
MotivationAnalysis and ResultsFinal Remarks
Summary of Main Findings
Investment does not seen to increase the capital-labor growthrate because of the following reasons:
1 Investment is volatile and unstable.2 Adjustment costs are high.3 Investment rate is still low to sustain positive growth.4 Return to investment is low.
Productivity in Bolivia can be significantly explained bycyclical variables, stabilization policies, participatoryinstitutions, and favorable initial conditions.
Terms of trade improvements significantly affect productivity,but the direction of the total effect is not clear.
Carlos Mendez (GSID) Productivity Puzzles 66/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
Outline
1 Research Progress: What’s new?
2 Stochastic Trends and Production Parameters
3 Factor Accumulation and Productivity Growth
4 Investment and Productivity Determinants
5 Steps ahead
Carlos Mendez (GSID) Productivity Puzzles 67/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
Steps ahead
Review and adjust chapters 2, 3 and 4 based on comments ofseminar members.
Based on the main findings, incorporate further analysisregarding policy recomendations.
Finish writing chapter 5: ‘Growth and Institutional Puzzles’
Finish the first draft of my Ph.D research proposal:‘Productivity, Technology Adoption, and Structural Changeunder Globalization: A Comparative Analysis between LatinAmerica and Asia’
Carlos Mendez (GSID) Productivity Puzzles 68/69
CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth
CH4: Investment and Productivity Determinants
THANK YOU!
Carlos Mendez (GSID) Productivity Puzzles 69/69