Vorlesung Teil 5: Growth after 2002, Mint Studies and the Productivity Paradox

Question 1

Growth and Productivity after 2000

Answer 1

Growth after 2000

• According to growth theory, there are three main economic driving forces
  
  • Capital accumulation (Net Investment) = s – d
  • Technological Progress (A, growth rate of A = g_A) measured by TFP
  • Work Force (N, growth rate of n, g_n) = Human Capital, measured by Labor Force and Labor Productivity
• Net investments declined in USA, France, GB, Spain, Germany and Italy from 1960 on
  
  • In 1970 almost 14% of GDP was investment in Germany
  • In 1990 it has decreased to almost 9% of GDP
  • In 2018 it was 3% of GDP -> close to steady state, where capital accumulation/net investment is zero (s - d = 0)
• In Italy net accumulation is even lower than zero -> destruction of
  capital
• TFP(Germany 1989) = 18%; in 2017 = 0.7% (degression after german unification)
  
  • Labor Productivity in Germany in communication and information sector has increased significantly because millions of people have become substituted by digitilization
• All OECD countries suffer from stagnation because of low labor productivity, almost no technological progress and almost no net investment
• Decreasing population hinders growth
  
  • you need 2.1 kids per parents -> for growth you need more than two
• First world countries are coming to a stagnation, while developing countries are still increasing
  
  • Approximation to steady state?
• Labor productivity in Germany:
  
  • Labor productivity in the communication and information industry has increased significantly
  • In Industry labor productivity has increased on an average annual basis by 2.4%
  • In the trade sector and in land and housing the performance is slightly positive
  • In all service sectors the growth is negative
  • Aggregate labor productivity has increased by 1.4%
• Summing Up:
• Net investment has fallen from 9% of GDP in 1990 to 6% in 2000.
  after 2001 it has decreased to 0.7% in 2010 and 3% in 2018
• TFP growth rate has fallen from 1.8% in 1990 to 0.4% in 2009 and has increased a little since then to 0.7%
• Labor productivity has fallen in the service sectors, morderately increased in industry and significantly increased in communication and information

Question 2

MINT Studies & the Productivity Paradox

Answer 2

MINT Studies:

• Endogenous growth theory suggests, that employees educated in mathematics, computer science, engineering and natural sciences lead to more succecsful R&D and therefore higher technological progress -> higher TFP growth
• Since population and productivity is decreasing, we should increase labor productivity -> provide more education
• > you learn something because your labor productivity will be higher in the long run
• The only possibility of growth in the steady state is technological progress
• BUT! Data suggests otherwise. In China the students of MINT subjects increase with 5.5% per year, but TFP has a slope of -0.02%
• Caspari’s growth regression shows multicollinearity: different subjets are correlated
• *-> YOU NEED ALL TYPES OF HUMAN CAPITAL**
• Medicine was the only one siginificantly and positively correlated to growth -> the more people are healthy, the more people can work

Question 3

Inventions

Answer 3

• Patents in 2018
  1. USA; 2. Germany; 3. Japan; 4. France; 5. PR China
• Innovation in Germany – last ten years
  67% product innovations (horizontal), 23% innovation in quality (vertical), 10% process innovations with cost reduction (technological progress)
• 2017 – only 3,1% process innovations with cost reduction, lowest value since 2006 -> which are the most important!

Question 4

Productivity Paradox

Answer 4

• There is no harming effect of digitalization to laborers, we actually need more laborers (industry 4.0 is not destroying workplaces)
• Slowdown in productivity growth in the US in 1970s => automatization does not increase productivity or decrease labor demand
• Robert Gordon writes in his book The Rise and Fall of American Growth:

“As the computer industry has developed, the steady decline in the prices of computer characteristics has fueled the development of increasingly complex software with high requirements for speed and memory required by graphical point-and-click interfaces that yield increasingly small increments of true functionality. The race between hardware capability and software requirements has been aptly summed up in the phrase, ‘What Intel giveth, Microsoft taketh away.’” (Gordon 2000, S. 63)