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Lourens Broersma & Jouke van Dijk Faculty of Spatial Sciences University of Groningen

Differences in Productivity Growth in the Netherlands: An Industry-level Growth Accounting Approach 52 nd American Meeting of the Regional Science Association Riviera Hotel & Casino, Las Vegas, USA, November 11, 2005. Lourens Broersma & Jouke van Dijk Faculty of Spatial Sciences

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Lourens Broersma & Jouke van Dijk Faculty of Spatial Sciences University of Groningen

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  1. Differences in ProductivityGrowth in the Netherlands:An Industry-level Growth Accounting Approach52nd American Meeting of the Regional Science Association Riviera Hotel & Casino, Las Vegas, USA, November 11, 2005 Lourens Broersma & Jouke van Dijk Faculty of Spatial Sciences University of Groningen jouke.van.dijk@rug.nl www.joukevandijk.nl

  2. Outline • Motivation • Methodolgy: growth accounting approach vs. econometric approach • Results • Explaning mfp-growth • Concluding remarks • Policy implications

  3. Motivation for this study • Can (part of) the slowdown in Dutch productivity growth relative to the USA and relative to Europe be explained from developments at the regional perspective? • Increasing labour productivity as a national and regional policy goal

  4. Motivation for this study Trends in labour productivity growth USA, EU-15 and Netherlands Source: GGDC (at www.ggdc.net)

  5. Analysis for twelve Dutch provinces

  6. Differences in labour productivity between NUTS-2 regions

  7. Methodology • Econometric approach • Specify and estimate production function • Interpret estimated parameter values in terms of contribution to productivity growth • Growth accounting vs. econometric approach • GA based on micoeconomic theory • GA easy to interpret • GA very data demanding • Ec straightforward to apply • Ec implies econometric problems (simultaneity), which require complicated techniques and parameters may still be difficult to interpret

  8. Growth accounting • Growth accounting technique is capable of obtaining contributions of different regional inputs to regional productivity growth • Growth accounting is very data demanding • Application to regional data for The Netherlands gives plausible results and are nation-wide comparable to results of other country-studies

  9. Growth Accounting: decomposition technique for productivity GROWTH • Calculates the contribution of: • Non-IT capital • IT-capital • Quality of labour • Sectoral reallocation of labour • Residual: MFP growth = disembodied technical progress (regional competetiveness)

  10. Periphery Core Groningen Friesland Drenthe Overijssel Flevoland Gelderland Utrecht Noord-Holland Zuid-Holland Zeeland Noord-Brabant Limburg Netherlands -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 Quality of labour IT capital deepening non-IT capital deepening MFP growth Reallocation of labour Sources of labour productivity growth in The Netherlands at regional level, 1995-2002 Reallocation of labour MFP-growth Quality of labour / Non IT Capital / IT capital

  11. Results • Regional differences in labour productivity growth are primarily driven by regional differences in mfp-growth • Mfp-growth is low in western (economic core) regions and high in peripheral regions • Contribution of labour quality (education) and IT use relatively low in periphery

  12. Explaining mfp-growth Indicators, besides labour and capital, that affect productivity growth: • Innovation / R&D • Density / congestion • Labour effort / work ethics • Tightness of the labour market • …

  13. Estimation results explanatory model MFP growth 1995-2002

  14. Conclusions • Analysis growth of labour productivity: Growth Accounting – MFP-growth • Factors that matter: • MFP-growth > IT capital > non-IT capital > labour quality > reallocation of labour • MFP-growth explained by car density (core) and UV-ratio (periphery)

  15. Concluding remarks • Reasons why the Dutch productivity growth rate is low in the second part of the 1990’s, based on regional growth accounting, are: • lagging contributions of education and use of IT capital in peripheral regions • lagging mfp-growth in the core regions, which is partly caused by congestion

  16. Policy implications • Labor productivity versus employment growth versus labor costs • Differences between regions – firms • Relation education – innovation – labor cost • Policy to increase labour productivity and maximize contribution of each regional to national welfare or: reduction of regional disparities? • Schooling? Focus on higher education or basic skills? R&D – innovation (technical – social / product – process) • Government investments in core or periphery?

  17. Differences in ProductivityGrowth in the Netherlands:An Industry-level Growth Accounting Approach52nd American Meeting of the Regional Science Association Riviera Hotel & Casino, Las Vegas, USA, November 11, 2005 Lourens Broersma & Jouke van Dijk Faculty of Spatial Sciences University of Groningen jouke.van.dijk@rug.nl www.joukevandijk.nl

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