Measuring Multifactor Productivity Growth

This paper quantifies and examines the contribution of capital, labour and multifactor productivity(MFP) to GDP growth and analyses the role of measurement of capital and labour inputs for the MFPestimate, using a comprehensive growth accounting exercise for 14 OECD countries. For most OECDcountries, the strongest contributions to GDP growth over the past decade have come from growth in totalcapital input and MFP. This is to some extent related to an increasing role of information andtelecommunication technologies in economic growth, particularly over the 1995-2003 period. Theimportance of measurement issues varies substantially with the type of measurement issue beingconsidered. Substantial differences are observed between employment and hours worked based MFPgrowth rates. Also, the respective weights with which capital and labour enter the growth accountingequation, and thus, the assumptions concerning the efficiency of production and competition in productmarkets, significantly influence the resulting MFP estimate. Finally, the results suggest that policyconclusions on the basis of different empirical studies should be made very carefully, in particular asregards the time period for which the respective studies have been undertaken, as well as whether actual ortrended time series are being considered.