Showing papers in "Review of Income and Wealth in 1972"

International studies of factor inputs and total factor productivity: a brief survey

Abstract: This paper summarizes the results of several studies on total factor productivity of twenty-five countries over the period 1950–1965. Some methodological issues which underlie the derivation and calculation of the familiar partial and total factor productivity indices are discussed. Though evidence on labor productivity for a large number of countries is presented and discussed, the main thrust of the discussion is in terms of the determinants of total factor productivity. The quantitative and qualitative contributions of labor and capital to growth of income are assessed with special attention to the contrasting patterns of these contributions among developed and developing economies. The problems of acceleration and retardation of the growth rate of some economies are considered and possible explanations are offered. Variations in the magnitude and sectoral distribution of the growth rates in several countries over this period are examined. Finally, areas for further research in comparative economic growth are suggested.

The impact of education on income distribution

Abstract: In this paper the author adds some further empirical tests of his theory of income distribution. This theory (cf. this Review, Series 16, Number 3, September 1970, p. 221 ff) sees income distribution as the distribution of prices of production factors, especially labour, of different quality and prices as the effect of demand and supply factors. The quality of labour is represented only by the number of years of schooling. Its supply is described by the actual numbers of people having each of the possible years of schooling; this frequency distribution can be characterized by its average and by some measure of its dispersion or by one of its deciles (in particular the highest) expressed in terms of its median. The demand for the various qualities of labour can be supposed to be reflected by (i) total demand for commodities, but (ii) more accurately by the percentage of third-level educated people used in and weighted by the size of the four main sectors of production: agriculture, manufacturing, trade and transport, and other services. Extensive material collected and reworked by Professors B. R. Chiswick for the U.S.A. and Canada and T. P. Schultz and L. S. Burns with H. E. Frech III for the Netherlands is used in cross-section tests to explain variations in income distribution in the states of the U.S.A. and the provinces of Canada and the Netherlands. The results can be found in the tables. While further increase and smaller dispersion in years of schooling, according to some of the findings presented, would only moderately reduce the degree of inequality in the U.S.A. and Canada, more result seems to be possible according to other findings, including those for the Netherlands. In the latter category the second demand index mentioned above has been used. This paper is one of several devoted in various ways to the testing of the same theory.

Salaries—a framework for the study of trends

Abstract: This paper proposes that salary structures and the development of salaries over time be considered within the framework of the distribution of income over time. In particular, it examines certain salary scales in the U.S. and the progressions of typical individuals’ salaries during the period 1948–1969, in comparison with the percentile distributions of household income in the same period, as reflected by the Current Population Survey of the Bureau of the Census.

Classification of sources of growth

Abstract: Changes in many output determinants contribute to growth. An analysis of the sources of growth is an allocation of changes in output among these determinants. Total factor input and output per unit of input condense all determinants into two groupings. Misinterpretation of results is common because authors presenting either detailed or summary results often provide no complete or precise description of their classification of determinants, and readers ignore even the information provided. The classification suggested in this paper is detailed enough to bring out points at which description is required but often overlooked. Some effects of alternative estimating procedures on classification are described. The relative usefulness and practicality of possible alternative classifications also need consideration and discussion. This paper is concerned with general purpose classifications, appropriate for analysis of actual series measuring a country's total output, that are suitable for present use but will also accommodate useful detail that may later become feasible. A desirable classification will so specify determinants that (1) they both unite cause with effect and correspond to the economist's method of analysis so that his set of tools can be brought to bear; (2) they do not contribute to growth if they do not change; and (3) they conform as well as possible to practical possibility of estimation. Among several points considered fundamental are that the complete contributions of advances in knowledge and of resource reallocation each appear as an entity. They should not be dispersed among inputs or other determinants. It is less clear whether economies of scale should be a separate determinant or their contribution be dispersed.

The treatment of intangible resources as capital

Abstract: The author describes the results of his current research designed to measure total investment, tangible and intangible, and the derived capital stocks for the U.S., 1929–1966. With respect to total investment, the estimates show a marked increase in its ratio to GNP. All of the increase occurs in the intangible component comprising R & D, education and training, health, and mobility. The increase was concentrated in the government sector, although households increased the proportion of disposable personal income devoted to total investment. Consistent with the relative investment trends, the stock of intangible capital grew considerably faster than the tangible stock. The growth of total capital stocks was somewhat less than that of GNP, however, in both current and constant prices. Thus, the rate of return on total capital rose somewhat over the period. Average rates of return on human and nonhuman capital were closely similar. In real terms, the growth of total capital stocks accounted for two-thirds of the growth in real GNP, 1929–1966. One-third of the growth is attributed to residual forces, chiefly economies of scale, changes in inherent quality of human and natural resources, changes in values and motivations, and changes in rates of utilization of capacity. The growth of the ratio of real intangible stocks to real tangible stocks accounted for less than half of the increase in total factor productivity 1929–1966. This is significantly less than the contribution of intangibles as estimated by Denison, and the author adduces several reasons why his estimates may understate the contribution. Nevertheless, it seems that the net effect of the residual forces enumerated above must also have made a substantial contribution to the growth of tangible factor productivity and real GNP over the 37-year period.

The Measurment of Capital and Total Factor Productivity in the Context of the Cambridge Theory of Capital

Abstract: In this paper I set out the reasons why the measurement of total factor productivity must be conducted along Harrod-Robinson lines and why the traditional Hicks-Solow-Denison et al. approaches must be rejected as theoretically faulty. The basic point is simple. The traditional approach is based squarely on the fundamental distinction between technical change (a shift in production functions) and capital accumulation (movements along production functions). This distinction fails to take into account the essential intermediateness of capital goods. Once attention is focused on that point, the neoclassical distinction and all measures of total factor productivity based on neoclassical analysis are seen to be wrong. Though it generalizes to many-commodity models, the analysis is drawn up in terms of one and two commodity growth equilibrium models and, particularly in the latter context, the validity of the Harrod-Robinson approach is clearly seen. The significance of the "reswitching controversy"for measurement of total factor productivity is briefly assessed. In the context of vintage models and a short discussion on the measurement of quality change, the Harrod-Robinson approach to the measurement of total factor productivity is again seen to be superior.

A technique for estimating income trends from currency data and an application to nineteenth‐century brazil

Abstract: This paper develops a method for estimating long-run trends in income growth from the data available on a country's currency stock. The method is applied to nineteenth-centry Brazil. The results indicate that contrary to earlier beliefs, the country as a whole probably experienced only moderate growth in per-capita income during the nineteenth century. The approach may also be useful for other countries where data shortages preclude estimates of national income by conventional methods.

What accounts for japan's high rate of growth?*

Abstract: The purpose of this paper is to investigate the sources of economic growth in Japan and to compare the results with those in the U.S. and Europe as studied by E. F. Denison. The method used by Denison is followed as far as possible. The character of this paper is of fact finding, and the interpretation of results or the originality of methodology is not dealt with here. The results may be summarized as follows. (1) Japan's growth rate is two times that of Europe and three times that of the United States. (2) The contributions of labor, capital, and the residual to economic growth are all higher for Japan than for the U.S. or Europe. (3) Factors which account for the higher contribution of labor to economic growth are (a) the higher rate of increase in employment, (b) less shortening of working hours, and (c) improved age and sex composition. (4) Factors which account for the higher contribution of capital to economic growth are a higher rate of increase in capital input and the high elasticity of production with respect to capital. (5) Other notable points include: (a) the contribution of education is lower for Japan; (b) the capital-labor ratio in Japan increased remarkably; (c) capital's share of national income is higher; and (d) 60% of Japan's economic growth is accounted for by the residual.

Some reflections on the intersectoral terms of trade(1) for denmark in the period 1949 to 1965

Abstract: This article is an extension of an earlier article dealing with gains and losses from changes in the terms of trade. The object of the present article is to show how gains and losses in foreign trade are distributed among the branches of domestic industry. To this end, price changes for gross domestic product at factor cost in each of 25 branches of industry over the period 1949–1965, computed where possible by the double deflation method, are compared with the change over the same period in final demand—i.e., consumption plus gross investment.

“environment”, “needs” and real income comparisons(1)

Abstract: Conventional measures of national product make no pretence of including everything that affects welfare. As increasing attention is being paid to environmental pollution, the problem of incorporating certain non-economic variables into the analysis of well-being becomes more relevant. The object of this note is to show how a difference in “needs” for, and hence expenditures on, anti-pollutants, which will show up in conventional national accounts comparisons as differences in “tastes”, should be converted into differences in real income.

Combining inputs to secure a measure of total factor input

Abstract: An underlying theme in this paper is that the differences in approach in this area arise partly from the complexity of the phenomena in the real world being studied, the implications of this interrelated complexity for unbiassed and efficient estimates of the structural relations, and the problems of getting an adequate number of observations of the required form. Two distinct approaches have been used in the study of marginal and total factor productivity. One approach is to use the factor shares in national income as weights to combine the individual factor inputs to make an index of total factor input, and to use a factor's relative share to measure its marginal contribution. The second approach is to estimate the production relation from the data being used, and derive the marginal contribution of the productive factors to output from the estimated relation. The longest parts of the paper review the procedures followed to cope with the main problems in the real world, and the strengths and limitations in the two approaches. The discussion emphasizes the issues for the economy as a whole, and touches only briefly on the issues in disaggregation. Three major themes are emphasized in the conclusions to the paper. One is that many of the problems, the differences in view, and the controversies grow out of the range of interrelated issues in practical applications. A second major theme is that most of the attempts to solve particular issues by those using the factor shares approach are rather similar to those followed by researchers estimating the production relations directly. A third theme is to encourage more studies that will look at the interconnections between production relations and income distribution, from the points of view of both economic theory (and its predictions about the relevance to concrete applications) and statistical estimation.

Social matrices and indicators in the traditional african economy

Abstract: This paper discusses the relevance of the conventional national accounts systems to the traditional African economy and concludes that they contribute little because they omit certain economic activities and fail to recognise the reciprocity between social and economic activities. Social accounting is thus more relevant. Lack of statistical data may make it necessary to conduct special surveys and in some cases a tribe or village or economic region may be a more useful accounting unit than a nation. A modified system of accounts is suggested, based on the frame work of the four consolidated accounts of the SNA. It provides linkages to many more nonmonetised activities. Other linkages would be provided through supporting tables emphasising social activities and transfers. A system of transactor accounts in matrix form is also suggested. In the case of communities smaller than the nation several external transactor sectors could be included. It is recognised that the problem of evaluation of social activities and a number of economic activities remains to be solved and it is concluded that “time spent” may be the only common unit or value to equate such activities. The final section deals with investment in human resources and proposes a balance sheet approach to indicative planning. This exercise would be related to demographic projections in several variants. Other factors to be analysed dynamically would be education and health status, public finance and, ultimately, distribution of income and wealth since it is noted that the process of monetisation is having an impact which may have important welfare implications.

National wealth estimation in socialist countries

Abstract: The CMEA standard of statistical information provides a system of national wealth indicators. The paper deals with certain time series published in these countries and in the CMEA Statistical Yearbook as the components of that system. Special attention is paid to the USSR interbranch balance of 30 types of fixed assets cross-classified by 105 branches of economy. This balance is analogous to the input-output table technique in the western literature. On the basis of this balance the Soviet statisticians furnish coefficients of direct and total requirements in fixed assets for each branch. Such coefficients are usually called capital ratios or capital coefficients. In the USSR they are calculated together with the coefficients of direct and total requirements of labour for the same industries, and they supplement input-output tables. The scheme of the fixed assets balance and the matrix for the calculation of these coefficients are described in the paper together with some numerical illustrations of actual coefficients reached in the calculations.

The Impact of Education on Distribution

Abstract: In this paper the author adds some further empirical tests of his theory of income distribution. This theory (cf. this Review, Series 16, Number 3, September 1970, p. 221 ff) sees income distribution as the distribution of prices of production factors, especially labour, of different quality and prices as the effect of demand and supply factors. The quality of labour is represented only by the number of years of schooling. Its supply is described by the actual numbers of people having each of the possible years of schooling; this frequency distribution can be characterized by its average and by some measure of its dispersion or by one of its deciles (in particular the highest) expressed in terms of its median. The demand for the various qualities of labour can be supposed to be reflected by (i) total demand for commodities, but (ii) more accurately by the percentage of third-level educated people used in and weighted by the size of the four main sectors of production: agriculture, manufacturing, trade and transport, and other services. Extensive material collected and reworked by Professors B. R. Chiswick for the U.S.A. and Canada and T. P. Schultz and L. S. Burns with H. E. Frech III for the Netherlands is used in cross-section tests to explain variations in income distribution in the states of the U.S.A. and the provinces of Canada and the Netherlands. The results can be found in the tables. While further increase and smaller dispersion in years of schooling, according to some of the findings presented, would only moderately reduce the degree of inequality in the U.S.A. and Canada, more result seems to possible according to other findings, including those for the Netherlands. In the latter category the second demand index mentioned above has been used. This paper is one of several devoted in various ways to the testing of the same theory.

A simplified integrated form of sna and mps

Abstract: At present two systems of measurement of national product are in practice, one as defined in the UN System of National Accounts (SNA) and the other termed the Material Product System (MPS) or National Balances for the Economy. In the present paper, an expanded system of accounts integrating the national balances within the framework of a simplified SNA has been suggested. The accounts suggested are mainly the two sets of (i) Supply, Disposition and Domestic Production of goods and services and Consumption Expenditure of Budget and Mixed Organisations and the Population, and (ii) Income and Outlay and Capital Formation Accounts. The system is convenient not only for arriving at estimates by either of the two approaches, but is readily manageable. This set of accounts can, without any effort, be put in the form of a matrix leading to its ultimate integration with either the UN System of National Accounts or a modified system of national balances. The system gives not only the integrated system of SNA and national balances, but also a coded list of transactors and transactions within the economy. This coded list can be used as the first set of information for the creation of the economic data bank for the Integrated Statistical Information System.

Measurement of total factor input, technical change and output by industry in the federal republic of germany 1958–1968

Abstract: This paper deals with some results of an extended investigation which was carried out by the German Institute of Economic Research, Berlin, and the Ifo-Institute, Munich, and financed by the Stiftung Volkswagenwerk. For 29 sectors of manufacturing Cobb-Douglas production functions have been calculated, based on quarterly figures 1958–1968 of value added, input of hours worked, input of utilized capital stock (net of scrappage), and of potential value added, potential labor input and total capital stock. The income distribution is used as production elasticities. For each of the 29 sectors 12 time series of quarterly indices of total factor input and technical change have been computed, using utilized data (variation 1-6) and capacity data (variation 7-12). Two different time series of α are used, taking quarterly interpolated data (variation 1, 3, 5, 7, 9, 11) and the geometric mean 1958–1968 (variation 2, 4, 6, 8, 10, 12). Moreover three different parameters of homogeneity are introduced, taking r= 1 (variation 1, 2, 7, 8), r= 1.1 (variation 3, 4, 9, 10) and r= 1.25 (variation 5, 6, 11, 12). Seven of the 29 sectors show a very high sensitivity of the rate of technical change due to the assumed r, six sectors a rather high sensitivity. Ten of the 29 sectors show a rather small sensitivity of technical change due to the assumed r, six sectors a very small or even negative sensitivity, i.e. an increasing r creates an increasing technical change. These results can be explained by taking account of the fact that total factor input in many branches increased very slowly or even decreased (labor input alone decreased in nearly all branches). A hierarchy of technical change has been calculated; this hierarchy is difficult to explain, because fast growing industries as well as industries with a small or a negative growth rate of output rank in both the leading and the last group of technical change. Very high rates of output result in high rates of technical change (chemicals, mineral oil refining, plastics manufactures), but some industries with a rather small growth of output (shipbuilding, fine ceramics, steel drawing, and cold rolling mills) show a high rate of technical change too.

Innovations and economic development–the canadian case

Abstract: This paper assesses the role of inventive and innovational activity in the growth process of Canada, a country which relies overwhelmingly, some 90 per cent, on the importation of technological advances and operational know-how from abroad. Canada has prospered under this arrangement but at a price. With technology came foreign capital, foreign management and substantial foreign control. To lessen Canada's dependence on foreign know-how, this country has embarked on an expanded R & D programme. But the pay-off from these efforts has been less than expected. To throw a light on the subject, the results of two new surveys are presented: one a sample survey of patents granted, the other an interview survey of large corporations. Questions examined include sources of know-how and technological advances, utilization of inventions and abandonment of innovations, R & D and innovations, domestic and foreign innovations, and the profitability of innovations. Aggregative assessment is supplemented by disaggregative analysis using cross-section and industry data.

Notes on developing countries and their statistics

Abstract: Statistics for developing countries often are misunderstood and misinterpreted because the published data do not distinguish between the economically modern and the traditional sectors. The purpose of economic development is to move a nation from the traditional, or largely non-monetary, subsistence agriculture type of life, to the modern or money oriented and technologically developed type. Statistics of national accounts, the economically active (the working force), and other topics often fail to be useful for economic development purposes because they are presented for the totality of the country and do not show the modern-traditional sectors separately. In addition, data are often misinterpreted and used incorrectly because the development economists do not understand the nature of the data—how they were collected and what they really signify. This point is illustrated with the economically active statistics. Finally, a plea is made for more statistics and information about families.

Import forecasts for input-output models*

Abstract: The paper presents forecasting models for (1) the share of competitive imports in the total demand for a commodity group and (2) the level of demand for competitive imports of a commodity group. The two forecasting models are used, respectively, with (1) input-output models which incorporate market share parameters as one vector of coefficients and (2) input-output models which assume imports have been determined autonomously. It is shown that these two types of input-output models can be made workable by prefixing one or other of the import forecasting models to the input-output model. Tests are made of the forecasting ability of the combined models.

Exchange rate problems in national accounting of developing countries

Abstract: Developing countries which typically have import surpluses and inflationary pressures because of insufficient savings are prone to use indirect taxes on imports (Tm) and subsidization of exports (Sx) in order to prevent deterioration of the balance of trade. If these substitutes for devaluation are included in the net indirect tax component of product at current market prices (Ym) the import surplus is likely to be understated, and Ym upward biased. This distortion will be avoided if imports and exports are measured at effective exchange rates (ER), that is, at official rates (OR) plus Tm and Sx respectively, and if (Tm - Sx) is deducted from the net indirect tax component of Ym. Only in this manner become imports and exports consistent with the other uses and resources at market prices and can be articulated with them. At base-year prices the volume index of product at OR diverges from that of ER to the degree that the composition of imports and exports in regard to tax and subsidy rates computed ad valorem significantly changes. Such a case is similar to that of the price indexes of imports and exports moving in diverging proportions: the trade balance at base-year prices will differ from that at current prices. The resulting discrepancies in national accounts have led to proposals of deflating, for example, exports by the price index of imports. Suchlike approaches are incompatible with the principle of national accounting that prices are supposed already to measure substitution values. Deflating exports by import prices means reintroducing substitution values, as does, for example, deflation of incomes by a consumer price index. Correspondingly, since the trade balance at ER conceptually expresses the value of imports at domestic market prices as compared to the corresponding domestic market value of exports, and if at ER the trade balance diverges from that at OR, the former balance has an important meaning (as has the trade balance at base-year prices as compared to that at current prices) and the resulting discrepancy between the two measures should not be removed merely for the sake of accounting smoothness. In contrast to the market price approach, the measurement of product at base-year factor cost is indifferent to the measurement of the trade balance at ER and at OR. It is, therefore, proposed in countries in which part of import taxation and export subsidization substitutes for devaluation, to record imports and exports in the national accounts at effective exchange rates, and to correct the net indirect tax component of product correspondingly. Imports and exports at official exchange rates should be shown within the balance of payments, and the latter separately as a memorandum item.

Estimation of ces production functions with neutral technical change for industrial sectors in the federal republic of germany 1958–1968

Abstract: This paper discusses the estimation of the CES Production Function with Hicks-neutral technical change, and gives the results of an empirical study based on time series data (quarterly values) for sixteen industrial sectors in the Federal Republic of Germany (including West-Berlin), 1958–1968. The validity of the basic assumptions of the production model used in this investigation—neutrality of technical change and perfect competition—is tested by estimation of alternative specifications of the equations of this model. For this purpose two different methods of estimation were used.

Productivity growth in the hungarian economy1

Abstract: This paper analyses productivity growth in the Hungarian economy over the two decades between 1950 and 1970 with the aim of establishing what help can be provided in such analyses by the use of total factor productivity index numbers. After the introductory sections the paper deals first with the rates and factors of Hungarian productivity growth, and then with some methodological lessons of the investigation.