A Demand and Supply Analysis of Productivity Growth.

The estimates of productivity growth reported here show the contribution of various components of aggregate demand, including the positive role of low unemployment. The estimated equation was based on a model of growth and transformation, and was estimated using the longest period for which consistent data are available. This allowed us to isolate the effect of 'backwardness', which exerts its own influence on productivity growth, and more accurately assess the impacts of export and investment growth and catching up. The results show that our model can explain most of the variation in productivity growth among the economies in our sample. We have used it to analyze the productivity slowdown after 1973, and the recent growth surge in the United States.