Growth acceleration in the baltic states what can growth accounting tell us
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Growth acceleration in the Baltic States: What can growth accounting tell us?. Report by BICEPS Alf Vanags Rudolfs Bems. Other contributors. Sirje Padam Mark Chandler Kristine Vitola Morten Hansen Slava Dombrovsky World Bank team. The facts.

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Growth acceleration in the Baltic States: What can growth accounting tell us?

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Growth acceleration in the baltic states what can growth accounting tell us

Growth acceleration in the Baltic States: What can growth accounting tell us?

Report by BICEPS

Alf Vanags

Rudolfs Bems


Other contributors

Other contributors

  • Sirje Padam

  • Mark Chandler

  • Kristine Vitola

  • Morten Hansen

  • Slava Dombrovsky

  • World Bank team


The facts

Thefacts

  • Cumulative growth in the period 1996-2003 has been

    Estonia 51%

    Latvia59%

    Lithuania 52%

  • Can be identified as an example of ‘growth acceleration’ :–

    increase of growth of 2% or more that is sustained for at least 8 years (Haussman,Prichett, Rodrik 2004)


The issues

The issues

  • What lies behind the growth acceleration?

  • Are there differences between the three countries?

  • Is the acceleration sustainable?


Growth accounting approach

Growth accounting approach

  • Seeks to quantify the ‘proximate’ causes of growth

  • Decomposition into contributions of inputs:

    labour

    capital

    total factor productivity (residual)

  • Does not identify ‘deeper’ causes of growth eg policy, reform, savings, FDI etc


Results 1

Results (1)

Aggregate growth accounting 1996-2003


Results 2

Results (2)

Traded/non-traded growth accounting 1996-2002


Further dissaggregation construction trade transport and manufacturing

Further dissaggregation: construction, trade, transport, and manufacturing


Interpretation

Interpretation

  • Aggregate level: contribution of labour negligible – contribution of Capital and TFP 50/50

  • Disaggregate level: capital contributes more in non-traded sector – TFP contributes more in non traded sector

  • Labour contributes modestly in non-traded – very negative in traded sector


Sustainability

Sustainability?

  • Sustainability of growth depend on sustainability of growth of inputs

  • Labour force we know is going to decline especially in Latvia and Estonia.

  • Immigration??

  • Investment shares not abnormally high – exhaustion of investment opportunities in non-traded

  • TFP growth – also high, but not abnormally so


Growth acceleration in the baltic states what can growth accounting tell us

Historical evidence on TFP growth (average annual %)

1995-2002 1960-1980

Estonia 2.5Argentina1.1

Latvia2.6Brazil 1.85

Lithuania 3.1Chile 1.5

Colombia 1.2

Mexico2.3

Peru0

1947-1973Venezuela0.5

Canada1.751996-1990

France 2.96

Germany3.74Hong Kong2.2

Italy3.37Singapore-0.4

Japan4.2South Korea1.2

Netherlands2.48Taiwan1.8

UK

US1.35


Conclusions

Conclusions

  • For sure a demographic shock

  • Continued TFP growth is possible but difficult

  • “Different theories provide very different conceptions of TFP. Some model TFP as changes in technology (the “instructions” for producing goods and services), others highlight the role of externalities, some focus on changes in the sector composition of production, while others see TFP as reflecting the adoption of lower cost production methods…… we do not have empirical evidence, however, that confidently assesses the relative importance of each of these conceptions of TFP in explaining economic growth. Economists need to provide much more shape and substance to the amorphous term ‘TFP’.”


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