TFP Growth in British and German Manufacturing, 1950-96

The Paper considers the accuracy of traditional TFP growth estimates using an econometric methodology which takes account of scale economies, fixed factors of production and adjustment costs to reveal underlying ‘pure technological change’. The results suggest that these biases vary substantially over time but do not impact heavily on Anglo-German comparisons. In both countries the early post-war years are a period when adjustment costs from a rising supply price of capital goods hold down TFP growth below that which could have accrued from pure technological progress. As might be expected, this problem largely disappeared in the later globalization period.