Working Paper Series
Productivity Analysis: A Micro-to-Macro Perspective
Abstract: This paper raises several issues concerning productivity
analysis. An attempt is made to demonstrate the usefulness of a micro-based
approach to productivity analysis which challenges some basic assumptions
of conventional analyses based on aggregate production functions. With the
help of a micro- (firm-)based macro simulation model it is shown if there
are important differences among firms in economic competence, here
represented by efficiency and investment behavior, the relationships
between investment, productivity, and economic growth are much more complex
and unpredictable than commonly assumed . The rate of technological
progress as measured by the rate of change in best-practice technology
seems to be less important than the elimination of inefficiency by closure
of firms and/or by firms moving closer to their respective production
It is also shown that the conditions which determine firm
borrowing for investment (involving their interpretation of past
profitability and expectations based on current capacity utilization) are
more important for productivity and economic growth than the total amount
invested. In other words, it matters less how much is invested than who
does the investing, and under what incentives.
The implication for
productivity analysis is that unless diversity among economic units is
taken into account, the results are likely to continue to be inconclusive.
What is needed is much more of an integration of micro and macro theory
than has been accomplished thus far. In particular, economic competence
must be included.
The paper also tries to put productivity in the
proper perspective, not as an object in and of itself but rather as a
partial measure, at best, of economic performance at any level within the
Keywords: Productivity analysis; micro-to-macro model; simulation; investment; economic growth; technological progress; (follow links to similar papers)
JEL-Codes: C53; D22; D24; G11; O33; (follow links to similar papers)
56 pages, December 1987, Revised March 1990
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