French economy - Accounts and files2013 Edition

“French economy - Accounts and Reports” is published every year and presents a summary of economic developments in France and worldwide. It is based on the national accounts and analyses the main events of 2012.

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Paru le : 14/06/2013
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Evaluating total factor productivity: the advantage of a measurement of the quality of capital and labour

Pierre-Yves Cabannes, Alexis Montaut, Pierre-Alain Pionnier

Estimating and forecasting potential growth of an economy is usually based on breaking down the composition of growth into three factors: the amount of labour available, the amount of capital that can be used, and a “residual”, called total factor productivity (TFP). This residual is often likened to technical progress, even though it is broader and represents all sources of growth not taken into account by the first two factors of production. The amplitude of this residual can be reduced by measuring the contribution to growth of the “quality” of capital and labour, in other words by taking into account differences in productivity of the different categories of capital and labour. Between 1979 and 2010, across all branches of the economy with the exception of agriculture, real estate and non-market services, capital stock increased by 2.5% per year and the quality of this capital by 0.4% per year. For the same scope, total hours worked remained stable overall while the quality of labour increased by 0.5% per year. Between 1994 and 2007, across the whole economy, the inclusion of the quality factor took TFP growth from 1.3% to 0.9% per year, while that of the economic cycle brought this growth to 0.7%. Based on this new measurement of TFP and by making different assumptions based on the increase in quality effects, the accumulation of capital, and change in the labour force, we put forward three scenarios of potential growth for the period 2015-2025. The greatest uncertainty concerns future changes in total factor productivity. Depending on whether we assume that TFP returns to its 2008 pre-crisis pace of growth, or undergoes some degree of change after the crisis, potential growth can be projected at between 1.2% and 1.9% per year.

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Paru le : 14/06/2013