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

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

Report by BICEPS

Alf Vanags

Rudolfs Bems


Other contributors
Other contributors accounting tell us?

  • Sirje Padam

  • Mark Chandler

  • Kristine Vitola

  • Morten Hansen

  • Slava Dombrovsky

  • World Bank team


The facts
The accounting tell us?facts

  • Cumulative growth in the period 1996-2003 has been

    Estonia 51%

    Latvia 59%

    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 accounting tell us?

  • What lies behind the growth acceleration?

  • Are there differences between the three countries?

  • Is the acceleration sustainable?


Growth accounting approach
Growth accounting approach accounting tell us?

  • 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) accounting tell us?

Aggregate growth accounting 1996-2003


Results 2
Results (2) accounting tell us?

Traded/non-traded growth accounting 1996-2002



Interpretation
Interpretation manufacturing

  • 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? manufacturing

  • 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


Historical evidence on TFP growth (average annual %) manufacturing

1995-2002 1960-1980

Estonia 2.5 Argentina 1.1

Latvia 2.6 Brazil 1.85

Lithuania 3.1 Chile 1.5

Colombia 1.2

Mexico 2.3

Peru 0

1947-1973 Venezuela 0.5

Canada 1.75 1996-1990

France 2.96

Germany 3.74 Hong Kong 2.2

Italy 3.37 Singapore -0.4

Japan 4.2 South Korea1.2

Netherlands 2.48 Taiwan 1.8

UK

US 1.35


Conclusions
Conclusions manufacturing

  • 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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