Measuring Economic Growth and Productivity

Foundations, KLEMS Production Models, and Extensions

Barbara Fraumeni, Barbara M. Fraumeni

• Publisher: Academic Press
• Year: 2019
• Print ISBN: 9780128175965
• eBook ISBN: 9780128175972
• Topic: Economics
• Subtopic: Investments & Securities
• Index: Economics

Measuring Economic Growth and Productivity: Foundations, KLEMS Production Models, and Extensions presents new insights into the causes, mechanisms and results of growth in national and regional accounts. It demonstrates the versatility and usefulness of the KLEMS databases, which generate internationally comparable industry-level data on outputs, inputs and productivity. By rethinking economic development beyond existing measurements, the book's contributors align the measurement of growth and productivity to contemporary global challenges, addressing the need for measurements as well as the Gross Domestic Product.All contributors in this foundational volume are recognized experts in their fields, all inspired by the path-breaking research of Dale W. Jorgenson.- Demonstrates how an approach based on sources of economic growth (KLEMS – capital, labor, energy, materials and services) can be used to analyze economic growth and productivity- Includes examples covering the G7, E7, EU, Latin America, Norway, China, Taiwan, Japan, Korea, India and other South Asian countries- Examines the effects of digital, information, communication and integrated technologies on national and regional economies

Chapter 1

Economic growth: a different view

Edward A. Hudson Wellington, New Zealand

Abstract

We look at how the United States has achieved economic growth. Growth is driven by demand for innovative products, this demand creating new, rapidly growing industries. These growth industries and their supporting industries account for a relatively small part, perhaps only 10%, of the economy. Established industries, which make up most of the economy, grow at just a moderate rate, with demand for their products reflecting growth in incomes and population. When a leading industry saturates its market, its growth slows. Continuing economic growth then depends on new growth industries emerging. Increasing production is essential for economic growth, but this production responds to, not leads, growing demand. Our view of growth differs from conventional theory—we seek to understand the causes and processes of economic growth, not to develop a universally applicable predictive model.

Keywords

Demand-driven; Leading industry; Process innovation; Product innovation; Spending; Supply-enabled

1.1. The emergence of growth

1.1.1. The emergence of growth

Economic growth is the continuing increase in constant dollar GDP per capita. This growth started in England in the 18th century. New production techniques created a series of cheaper and new products, creating a succession of mass markets, starting with cotton goods and progressing through products made using steam power, iron, and steel. The United States took over economic leadership around the turn of the 20th century (see Maddison, 2006) and it too has seen a succession of new products and new industries, resulting in continuing growth.

US real GDP has increased at an average of 3.3% a year since 1890, while GDP per capita has increased at a 2.0% rate. Growth rates have varied considerably—there has not been steady growth. Table 1.1 shows the trends.

1.2. Our approach

1.2.1. Our approach

We first investigated the growth process in Hudson (2015). This chapter extends this earlier investigation, focusing on the United States.

We work at the industry level; this allows us to identify the mechanisms of growth, how the economy has changed, and what has driven these changes. Our industry analysis uses data from the National Economic Accounts, U.S. Bureau of Economic Analysis (BEA). These industry data start in 1947. For much of our analysis we compare growth before and after 1973. 1973 was a transition year as the first oil price shock hastened the end of the rapid growth of the metals and machinery industries, and an acceleration of the shift to electronics and services.

1.3. Industry growth

1.3.1. Changing structure

Different industries have performed in different ways. Table 1.2 shows the growth rates since 1947 for the BEA broad industry categories.

The economy grew at an average of 3.2% a year, but there was a wide range of growth rates for different industries, ranging from 0.8 to 4.7%. These differing growth rates lead to large changes in the sizes of the various industries. Mining in 2016 was less than twice its size in 1947, while Information was 23 times its 1947 size. The changes in detailed industries, not shown here, were even greater—the growth factor for Primary metals was just 1.1, while for Computers and electronic products it was 1076.

Table 1.1

US Economic growth.

Average annual growth rates
	1890 to 1913	1913 to 1929	1929 to 1947	1947 to 1973	1973 to 2016	1890 to 2016
Real GDP	3.9%	3.1%	3.4%	4.0%	2.7%	3.3%
Real GDP per capita	2.0%	1.7%	2.5%	2.5%	1.7%	2.0%

Source: Data from Maddison (2006) and U.S. Bureau of Economic Analysis.

Table 1.2

Industry growth relative to GDP.

Relative growth rates of value-added quantity indexes
	Growth rate relative to real GDP	Share of current dollar GDP
	1947–2016	1973
Agriculture, forestry, fishing, and hunting	0.9	4%
Mining	0.3	1%
Utilities	0.7	2%
Construction	0.6	5%
Durable goods	1.1	14%
Nondurable goods	0.8	8%
Wholesale trade	1.5	6%
Retail trade	1.0	8%
Transportation and warehousing	0.7	4%
Information	1.5	4%
Finance and insurance	1.3	4%
Real estate and rental and leasing	1.1	10%
Professional and business services	1.4	5%
Educational services	1.1	1%
Health care and social assistance	1.1	3%
Arts, entertainment, and recreation	1.0	1%
Accommodation and food services	0.7	2%
Government	0.6	16%
Other services	0.6	2%
Sum		100%

Source: Based on data from U.S. Bureau of Economic Analysis.

There have been large differences in industry performances—economic growth involves continuing change in the structure of spending and production.

1.3.2. Growth before 1947

Kendrick (1961, 1973) tracked growth by industry for the period 1899–1966. GDP increased at an average of 3.4% a year (see Maddison, 2006), but several industries grew at around double this rate. These were Electric machinery, Rubber products, Communications and public utilities, Chemical products, Transportation equipment, a...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Dedication
• Associate Editors
• Contributors
• Introduction
• Chapter 1. Economic growth: a different view
• Chapter 2. Expanding the conceptual foundation, scope, and relevance of the US national accounts: the intersection of theory, research, and measurement
• Chapter 3. Tax policy and resource allocation
• Chapter 4. Sources of growth in the world economy: a comparison of G7 and E7 economies
• Chapter 5. European productivity in the digital age: evidence from EU KLEMS
• Chapter 6. Manufacturing productivity in India: the role of foreign sourcing of inputs and domestic capacity building
• Chapter 7. An international comparison on TFP changes in ICT industry among Japan, Korea, Taiwan, China, and the United States
• Chapter 8. Losing Steam?—An industry origin analysis of China's productivity slowdown
• Chapter 9. Growth origins and patterns in the market economy of mainland Norway, 1997–2014
• Chapter 10. Progress on Australia and Russia KLEMS
• Chapter 11. Toward a BEA-BLS integrated industry-level production account for 1947–2016
• Chapter 12. Benchmark 2011 integrated estimates of the Japan–US price-level index for industry outputs
• Chapter 13. The impact of information and communications technology investment on employment in Japan and Korea
• Chapter 14. Economic valuation of knowledge-based capital: an International comparison
• Chapter 15. Measuring consumer inflation in a digital economy
• Chapter 16. Intangible capital, innovation, and productivity à la Jorgenson evidence from Europe and the United States
• Chapter 17. Getting smart about phones: new price indexes and the allocation of spending between devices and services plans in Personal Consumption Expenditures
• Chapter 18. Accounting for growth and productivity in global value chains
• Chapter 19. Emissions accounting and carbon tax incidence in CGE models: bottom-up versus top-down
• Chapter 20. Analyzing carbon price policies using a general equilibrium model with household energy demand functions
• Chapter 21. GDP and social welfare: an assessment using regional data
• Chapter 22. Accumulation of human and market capital in the United States, 1975–2012: an analysis by gender
• Index