Productivity and the Welfare of Nations

Productivity and the Welfare of Nations

This paper shows that the welfare of a country's representative consumer can be measured using just two variables: current and future total factor productivity and the capital stock per capita. These variables suffice to calculate welfare chan...

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Bibliographic Details
Main Authors:	Basu, Susanto, Pascali, Luigi, Schiantarelli, Fabio, Serven, Luis
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING AMOUNT OF CAPITAL ANNUAL GROWTH ASSET GROWTH ASSETS AVERAGE TAX RATES BENCHMARK BENCHMARKS BOND BONDS BUDGET CONSTRAINT CAPITAL ACCUMULATION CAPITAL GAINS CAPITAL GOOD CAPITAL GOODS CAPITAL INCOME CAPITAL INTENSITY CAPITAL MARKETS CAPITAL RETURNS CAPITAL STOCK CLOSED ECONOMIES CLOSED ECONOMY CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION GOODS CONSUMPTION GROWTH COST OF CAPITAL CURRENT ACCOUNT DEPRECIATION DEVELOPED COUNTRIES DEVELOPMENT POLICY DISCOUNT RATE DISCOUNTED VALUE DISTORTIONARY TAXES DISTORTIONS DOMESTIC BONDS ECONOMIC ENVIRONMENTS ECONOMIC PERFORMANCE ECONOMIC THEORY ECONOMISTS ELASTICITY ELASTICITY OF LABOR SUPPLY ENVIRONMENTAL ENVIRONMENTAL QUALITY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXOGENOUS VARIABLES EXPECTED UTILITY EXTERNALITIES FACTOR MARKETS FEDERAL RESERVE FEDERAL RESERVE BANK FORECASTS FOREIGN ASSET FOREIGN ASSET HOLDINGS FOREIGN CURRENCY FUTURE RESEARCH GDP PER CAPITA GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT SPENDING GROSS CAPITAL FORMATION GROSS DOMESTIC PRODUCT GROWTH MODELS GROWTH RATE GROWTH RATES GROWTH THEORY HOLDING HOUSEHOLD INCOME HUMAN CAPITAL IMPERFECT COMPETITION INCOME INCOME TAX INCOME TAXES INCREASING RETURNS INCREASING RETURNS TO SCALE INTANGIBLE INTANGIBLES INTERNATIONAL BANK INVENTORY INVESTMENT GOODS LABOR MARKET LABOR MARKETS LIFE EXPECTANCY LOTTERIES LOTTERY MACROECONOMICS MARGINAL COST MARGINAL UTILITY MARGINAL UTILITY OF CONSUMPTION MARKET BEHAVIOR MARKET COMPETITION MARKET PRICE MARKET PRICES MARKET STRUCTURE MARKET-CLEARING LEVEL MONETARY POLICY MONOPOLY NATIONAL INCOME NDP NET DOMESTIC PRODUCT NET EXPORTS OPEN ECONOMIES OPEN ECONOMY OPTIMIZATION OUTPUT PER CAPITA INCOME PERFECT COMPETITION PORTFOLIOS POSTWAR PERIOD PRESENT VALUE PRICE TAKERS PRIMARY MARKET PRIVATE BONDS PRIVATE CONSUMPTION PRODUCT MARKETS PRODUCTION FUNCTION PRODUCTION INPUTS PRODUCTION TECHNOLOGY PRODUCTIVITY PRODUCTIVITY GROWTH PUBLIC EXPENDITURE PUBLIC GOODS PUBLIC POLICY PUBLIC SPENDING RATE OF GROWTH RATE OF RETURN RATES OF RETURN REAL ABSORPTION REAL ESTATE REAL GDP REAL INTEREST REAL INTEREST RATE RELATIVE PRICES REMUNERATION RETURN ON ASSETS RETURN ON FOREIGN ASSETS SECONDARY MARKET SERIAL CORRELATION SHARE OF CAPITAL SLOWDOWN STEADY STATE STEADY STATE LEVEL STOCKS STRUCTURAL SHOCKS TAX TAX RATE TAX RATES TAX REVENUES TAXATION TECHNOLOGICAL CHANGE TECHNOLOGICAL PROGRESS TERMS OF TRADE TOTAL EXPORTS TOTAL FACTOR PRODUCTIVITY TOTAL IMPORTS TRANSACTION TRANSACTION PRICES UNCERTAINTY UTILITY FUNCTION VALUE ADDED WAGES WEIGHTS WELFARE GAINS Welfare TFP Solow residual
Online Access:	http://documents.worldbank.org/curated/en/2012/04/16204947/productivity-welfare-nations http://hdl.handle.net/10986/6028

Description
Summary:	This paper shows that the welfare of a country's representative consumer can be measured using just two variables: current and future total factor productivity and the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of market competition. It applies to open economies as well, if total factor productivity is constructed using domestic absorption, instead of gross domestic product, as the measure of output. It also requires that total factor productivity be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates and they will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of developed countries with high-quality total factor productivity and capital data. Under realistic scenarios, the U.K. and Spain had the highest growth rates of welfare during the sample period 1985-2005, but the U.S. had the highest level of welfare.

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