The Productivity Prize. Accounting for Recent Economic Growth Among the BRICs: Miracle or Mirage?
This paper examines the sources for acceleration in economic growth among the larger emerging market economies last decade. While growth in the labor force and capital stock were often important factors, the paper’s most important finding was that growth in total factor productivity (TFP), or efficiency gains, accounted for significant shares of growth in the larger emerging economies. In particular:
Contrary to recent anecdotal evidence, Chinese productivity gains do not appear to be diminishing. China’s TFP growth averaged 5.2% last decade - almost twice as fast as that of Japan’s and Germany’s during their peak TFP spurts – accounting for over one-half of China’s economic growth for that period. This is acceleration from the 4.1% rate it averaged during 1990-1999.
A healthy share of India’s improved economic performance is coming from efficiency gains. Last decade TFP growth averaged 2.8%, accounting for 41% of India’s real GDP growth (up from a one-third share during the slower growing decade of 1990-1999).
Brazil’s findings were perhaps the most surprising. While Brazil’s top line economic growth has clearly improved over the past decade, its efficiency has not. Brazil’s TFP growth averaged an abysmal 0.4% last decade, down from an average of 0.6% during the 1990s. It must be noted, however, Brazil’s TFP growth has picked up in the most recent period, averaging a much healthier 1.7% from 2004 through 2009.
While Russia’s TFP growth averaged an outstanding 4.8% for the decade, we were not able to adequately assess how much of this represented efficiency gains given that the sharp rise in the price of hydrocarbons might have accounted for much of this gain.
The authors also found strong sectoral productivity gains in both China and India from the reallocation of labor from low-productivity agriculture into the higher productive industry and service sectors. This reallocation effect added one and two percentage points to average annual economic growth for India and China, respectively, last decade.
With over half its workforce still directly employed in agriculture, India is expected to see sizeable TFP gains from this reallocation effect for some time to come.