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29-01-2010
Two Centuries of
Latin American Productivity Growth:
Chile 1833- 2005
JOSÉ DÍAZ GERT WAGNER
Financial support from Millenium Science Initiative, Ministry of Planning of Chile
is gratefully acknowledged.
We thank members of EH Clio Lab and members of Pontificia Universidad Católcia
de Chile Institute of Economics for their comments. We also benefitted from discussion of
a previous draft at the CLADHE II preparation meeting (Santiago, Cepal, Dec 17th 2009).
The views expressed herein are those of the authors.
Two Centuries of Latin American Productivity Growth: Chile 1833-2005
José Díaz and Gert Wagner
January 2010
JEL No. N16, O47
Abstract
This paper provides a growth accounting estimation for Chilean
product growth in the long period, identifying factor contributions and
total factor productivity. We find that average growth rates hide
substantial short period variability and a non negligible fraction of
negative TFP contribution. International comparisons underline
significant differences with other countries, but also are compatible with
a certain Latin American pattern.
José Díaz
Gert Wagner
Department of Economics
and EH Clio-Lab
Pontificia Universidad Católica de Chile
Av. Vicuña Mackenna 4860
782-0436 Macul, Santiago, CHILE
1
1 INTRODUCTION
The decomposition of economic growth into factor contributions and multi or total
factor productivity, that is growth accounting, extends the description of the growth process
that is obtained thru output measures. Growth accounting understands product variations in
the context of an aggregate production function framework where they are decomposed into
factor contribution change and a total productivity variation.
As a consequence of the comparative emphasis of the new development literature
where one central question refers to income differences among countries, attention falls on
the alternative presentation emphasizing average labor productivity growth (“development
accounting”, Caselli 2005).
Adopting a long period view, the following pages concentrate on the growth process
followed by one country in particular, Chile’s growth process from 1833 onwards and up to
the present. Such studies for the Chilean economy are not new and different authors
present output growth decompositions of this kind, and at least ten papers estimate growth
accounting decompositions for this case. One feature they have in common is their
concentration on samples falling mainly into the second half of the past century1. Another
characteristic of these studies is that results are presented in terms of periods of variable
extension with no access to year to year measurement.
Present work innovates with respect to this literature extending the period under
study back into the 19th
century and secondly, not only average rates of growth are
emphasized but also the development path followed by the economy. More than explaining
1 One author goes back until 1900.
2
total productivity growth and identifying factors that may account for it, this work centers
on the particular role of the productivity element on the path of the growth process.
Our conjecture is that the long period view offers material with potential for
illuminating the comprehension of issues and characteristics already implicit in the
literature of growth accounting studies for this economy. The long period view facilitates a
more general impression of the growth process and in this sense contributes to a broader
perspective. Features and phenomena which in a short period sample may be interpreted as
a special case, once put into a broader context may facilitate the distinction between
common and idiosyncratic aspects.
Recently developed data for product and factor series constitute the basic inputs for
accomplishing this task. The product series stretches back until 1810, but that is not the
case of factors, in particular, capital, which starts in 1833. A second relevant reason for
starting in 1833 and not earlier relates to the process of political independence. In 1810 the
colonial form of government became heavily destabilized by an exogenous shock from
which it could not recuperate. It took more than a decade before the former colonial power
decided to abandon its possession and even more for working out a stable government
structure in the new Republic. But in the beginning of the 1830`s may be the late 1820`s,
the emerging social and political organization starts to function again at the minimum level
required for providing the basic public goods enabling reasonably efficient economic
production. Supposedly per capita income had overcome the rigors of the independence
process and reached again its pre independence that is late colonial level2. In other words
2 In 1833 the fundamental pillars of a centralized state system had emerged: a republican system for
selecting and replacing political authorities, government had a reasonable control over the army and a solid public revenue structure based mainly on foreign trade taxes capable of sustaining a growing fiscal budget.
3
the sample initiates once output drops due to the independence process had been
overcome.3
We start with an overview of the basic model and a short review of the literature on
growth accounting descriptions of country’s growth. The following section offers stylized
facts and results on the distribution of factor contribution and productivity expansions in
the growth process. In section four results are compared with other studies of long period
growth. Final reflections close this view of the growth process. Description of the data can
be found in the annex. .
2 FACTOR CONTRIBUTION AND TFP: BASIC MODEL AND REVIEW OF
STUDIES FOR CHILE
A BASIC MODEL
The growth accounting decomposition of economic expansion is organized around
an aggregate Cobb-Douglas production function, Y AK L . while Y represents total
product of the country, K and L stand for capital and labor inputs, and A is a technical
parameter. Capital is seen as the product of physical or basic capital (C), the sum of
infrastructure plus machinery and equipment, and a capital quality index (q), hence K = Cq.
From there onwards and up to 2005 the Chilean economy has been growing at an annual average rate of 3.1 per cent and 1.5 per cent when measured by GDP per capita 3 Over the two last centuries per capita income of the average Chilean increased about 20 times, from a
level of 108 in 1833 (100 in 1810) it reached 2089 in year 2005. Despite of it and when measuring Chilean per capita income in relation to US per capita income, during the same time period Chilean income diminished. During the 19
th century some convergence can be seen, but starting around World Ward I the
relative position of the country has worsened substantially and it is only in the last twenty or so years that convergence toward rich countries can again be registered, this time starting from rather low level. (see Diaz, Lüders and Wagner (2007)
4
In the same vein, labor (L) is generated by a measure of employment (E) and a quality or
human capital index (h), that is L= Eh. Both, K and L are stock measures although
expressed in different units of account; services, that is inputs into the overall production
function, are supposed to be strictly proportional to the respective stocks.
While K L should capture factor contribution (FC), Y
AK L
reflects total or
multi factor productivity (TFP). Thus economic growth depends on the evolution of these
two elements: Y FC TFP K L A . The real significance of TFP is a polemic
issue (Griliches 1996, Lipsey and Karlaw 2000, Fuentes 2009). In the empirical exercise
this element captures everything left unexplained by the two factors, including, among
other, eventual correction by quality changes of basic inputs and effective factor
employment, and may include effects of overall productivity expansions not registered by
factor measures, such as production effects due to increasing use of non rival goods and so
on.
The above expressions can be rephrased in terms of a labor productivity growth.
Assuming that 1 and considering that the basic equation is 1
Y A Cq Eh
,
we get 1Y CA q h
E E
, where 1C
q hE
is called Factor Only Model (FOM) of
labor productivity by Caselli (2005).
B GROWTH ACCOUNTING FOR CHILE: LITERATURE REVIEW
Table 1 (a, b and c) summarize characteristics and results of growth accounting
exercises developed for the Chilean economy. The following aspects are considered: (i)the
definition of the inputs; (ii)the period under study; (iii)factor shares employed; (iv)the
5
estimated growth of TFP; and (v)the contribution to GDP growth by factors on the one
hand, and by TFP on the other. The last two columns show our results and shall be
explained later.
With the exception of Astorga et al. (2003) whose estimation starts in 1900, all other
authors cover periods after 1940. Series of national accounts estimated by government start
in 1940 and have been developed by different agencies showing significant methodological
differences, specially between the first twenty years 1940-1960 and after wards. Therefore
the construction of a coherent series based on uniform criteria is important.
Most authors settle for a capital coefficient around 35 per cent to 40 per cent and
operate with a constant returns to scale framework, the exception are Rojas et al. (1997)
and Astorga et al. (2003). As can be seen the magnitude for TFP changes varies among sub
periods and authors. It should be noted also that some shorter periods show negative TFP
growth meanwhile longer time extensions tend to be characterized by positive expressions.
C DATA
Data for capital –C- comes from Diaz and Wagner (2009), where total capital is
separated into two components: infrastructure and machinery and equipment. Employment
–E- is constructed as labor force (F) corrected by yearly unemployment. The latter comes
from an Okun type estimation which incorporates the share of agricultural labor force (see
Annex for details).
For both variables (C and E) indicators for productivity improvement are developed;
based on Christensen’s et al. (1980) methodology capital’s quality changes depend on the
relative importance of machinery in total capital. Secondly, the human capital index - h-
based on the evolution experienced by education captures changes in labor’s productive
6
capacity. The share of capital – K= Cq- is 0.34, estimated with data for the whole period
(see Annex for details).4
D STYLIZED FACTS
As shown in Table 2, over this long period the level of output per labor force, Y/F,
multiplied by a factor of 19, similar to output per employee, Y/E. But for shorter periods,
differences between labor force and employment are sometimes quite important. When
incorporating average human capital (h) output perr adjusted employee, Y/L, shrinks down
to 5.
A significant capital deepening process occurred over this long period, C/E , that is
capital over employee multiplied by 76 times, and K/L that is capital stock adjusted for
quality changes over human capital adjusted employment, multiplied by an factor of 39. It
can also be seen that both capital deepening ratios, C/E and K/L, expanded in a similar
fashion before 1900 and it is only in the 20th
century where they really differ; the q/h
indicator in Table 2 illustrates the underlying differences. In other words the effect of
quality adjustment on the availability of factors is a more recent twentieth’s century
phenomena.
Capital output ratios (Figure 1) provide an additional impression of the data. Two
aspects should be kept in mind, one referring to the composition of capital, the other to the
peculiar total capital increase in the second half of the nineteenth century. Until 1884
machinery capital in relation to total output never is above one per cent and it is only later
that this coefficient expands: reaching 10 per cent around 1920, 20 per cent half a century
4 Results obtained with higher coefficients for capital are reasonably similar. In addition, results obtained
with a variable coefficient were not different.
7
later and at the end of the period, in 2005, it is at a level equal to 48 per cent. Secondly,
total capital (C, machinery plus infrastructure) from a low level in the first decades starts
growing from the 1860’s onwards, extending until the 1920´s. This capital output
expansion, including the impact of northern regions with the Pacific War, gets a lengthy
discussion in Diaz and Wagner (2009).
3 PRODUCTIVITY GROWTH: TOTAL AND PER LABOR, 1833-2005
The results obtained in the growth accounting decomposition of Chilean economic
expansion are reported in three steps. First, average rates for the complete period are
shown. Second, the long period is divided up into decades and finally, a taxonomy of year
to year changes proportions an additional impression.
A LONG PERIOD PRODUCTIVITY GROWTH
In Table 3 the first column indicates annual growth rates of basic variables. The
third column shows factor contributions to total product growth meanwhile the fourth one
expresses these contributions in percentage points. Over the whole period 1833- 2005
factors, K and L together, explain 93.5 per cent of total output growth, leaving a residual
for TFP equal to 6.5.
Even if TFP contribution to total growth looks relatively small, it still plays a
significant role that can be appreciated in different ways. First, a counterfactual where
output growth rests exclusively on factor contributions, that is TFP growth is assumed
equal to zero, would have generated only 70 per cent of the actual product level in 2005.
Second, a variance decomposition of output growth shows that TFP growth variance
8
represent 64 per cent of the total, implying a high association among TFP and total product
volatilities.
In terms of labor productivity and again as an average over the whole period 1833-
2005 (Table 4) physical capital deepening accounts for 50 per cent of its expansion; capital
quality improvements add another 8 per cent and human capital expansions per employee
claim for 30 per cent. Therefore, total labor productivity expansion explained by factors,
Caselli’s (2005) factor only model, FOM, sums up to 88 per cent; the difference, that is 12
per cent, is left for TFP.
B THE YEAR TO YEAR PERSPECTIVE
Instead of referring to the whole period as in the previous section, year to year
changes are now looked at. A crude taxonomy of relations is shown in Table 5. On the one
hand years characterized by product expansions show positive TFP growth in 76 per cent of
the cases,5 and on the other hand, all years registering product reductions are accompanied
by negative TFP changes. The opposite does not hold and years with negative growth rates
for TFP do not necessarily imply negative product growth, moreover both cases show more
or less equal frequencies. Even so a crude classification, this observation is in line with the
above mentioned importance of TFP variance.
What about factor contributions? They weakly depend on TFP’s performance in
years characterized by positive product growth, but with negative output growth factor
contributions are substantially less, even so still positive.
5 106/(106+32)
9
C PRODUCTIVITY GROWTH PER DECADE
Table 6 shows that significant differences appear when subdividing the sample into
decades.6 Rates of change of TFP vary from over 3.4 per cent in the 1930´s to minus 2.7
per cent during the decade of the First World War (Figure 2). Essentially one may speak of
three periods where years with negative TFP growth are strong enough for generating a
negative value for the decade, that is: (i) 1871 up to 1900; (ii) the decade of the first World
War; (iii) the 1970’s and 1980’s. Average growth rate of factor contributions per decade
are always positive but vary between 2.1 to 5.5 per cent. Furthermore, it should be noted
that the three last periods show expansions in factor contributions rarely seen before while
TFP growth is more similar to rates observed in the past.
Additionally, TFP within decades is quite variable, as is illustrated by the respective
standard deviations, Figure 3. The lowest variability per decade can be observed for the
initial and final subperiods. Volatility of factor contributions is significant lower but
follows a similar pattern.7
D ENDOGENOUS GROWTH PHASES AND PRODUCTIVITY
With the endogenous periodization analysis of Chilean output growth of the last two
centuries, Diaz, Luders and Wagner (2008), five different phases are identified. Table 7
shows the growth accounting results now subdivided into these phases. We feel that three
aspects should be underlined here. First, both the first and the last phase show relatively
6 The selection of ten year periods is mainly an explicative device. In this sample ten year periods are short
enough for showing that long period averages hide substantial information but at the same time long enough for permitting an easy overview of Tables and Figures. A second aspect which should be stressed is that no a priory significance is assigned to the division so obtained: its only objective here is to illustrate that much heterogeneity hides under long period averages 7 Results for employee productivity growth can be seen in Figure 4. The overall impression is similar to the
total product growth accounting
10
high output growth and low TFP volatility. Second, the 1881-1917 phase exhibits negative
TFP growth accompanied by high volatility. Finally, the 1918-1950 phase is characterized
by a low FOM growth, and high volatility of all components. According to our reading of
growth accounting results when subdividing into endogenous generated phases, a negative
relation between output growth and TFP volatility can be seen, in particular when we leave
aside the most recent phase. The 1984-2005 phase fits into the above generalization but
exhibits a higher growth than predicted by past experience.
4 COMPARING RESULTS WITH OTHER STUDIES.
Growth decomposition exercises may generate different results because of many
reasons, characteristics of the data employed being an important one. This section
compares such studies, establishing differences and similarities among them. The
comparison does not attempt controlling for all the above mentioned characteristics and
therefore only a general impression can be obtained, but we think it does offer some
relevant insights for the understanding of the present case. We begin comparing with other
studies for Chile’s economy and then continue with estimates for other countries.
In general year to year studies are not published and therefore only average rates for
different time periods can be considered here. But these differences in the extension of the
periods permit at least some reflections on the role of variability, specially TFP variability.
A COMPARISON WITH OTHER RESULTS FOR CHILE
Data as already said, but also the inclusion of control variables, conditions results in
these growth accounting exercises. The comparison with other studies for the Chilean
11
economy permits us to distinguish five sources generating potential differences. Potential
because such differences may either cancel out among them or on may underline the other.
The main sources of differences are:
(i) output growth figure
(ii) series for basic inputs (our C and E)
(iii) quality adjustments when generating capital and labour (K, L)
(iv) method of selection of the parameter alpha
Differences in output growth figures are not uncommon; our own figures come from
Díaz, Lüders and Wagner (2007) where the reader may find a lengthy discussion of
possible sources for such differences.
Tables 1 (a, b and c) show that our estimations for TFP contributions tend to be
lower than those of other authors. As an example Figure 5 compares different TFP indexes.
Our own index for fully adjusted factors, DW_TFP_A, shows an extended period of decline
stretching mainly over the 1970’s and up to the middle of the 1980’s, then again raising up
to previous levels. The equivalent Fuentes et al. (2006) index, FLSH_TFP8, is more
conservative in its declining phases but eventually more sanguine during the following
expansion implying a substantial difference between initial and final levels. A second
comparison centers on TFP’s obtained when factors do not incorporate quality changes,
DW_TFP_NA and FLSH_TFP1. Here little difference is seen.
Since both papers work with similar series for employment, adjusted and not
adjusted, the difference in TFP behaviour should be attributed to differences in capitals
measurement.8 Figure 6 shows the evolution of capital indicators used by both estimations;
8 Fuentes et al. (2006) use α=0.4 meanwhile the present paper employ s α=0.34. Therefore, differences in
the measurement in capital input are reinforced by these coefficients.
12
the Fuentes et al. (2006) indicators, adjusted (K_FLSH) and non adjusted (C_FLSH), are
quite similar, meanwhile capital series used by the present paper show an evident difference
fundamentally due to quality adjustment.
B INTERNATIONAL COMPARISONS
Work by Cette et al. (2009) provides growth decompositions for the 1890-2006
period and some subdivisions for developed countries. In the long period, that is 1890-
2006, the share of TFP’s contribution of Japan, UK and the US is in the range of 41 per
cent to 51 per cent of total product growth, and France the outlier registers an incredible 83
per cent, Table 8a. In Chile and for the same long period output growth is only based on
factor contribution, an impressive difference. When looking at shorter time extensions part
of an answer to the above mentioned difference begins to emerge: Chilean TFP behavior is
highly heterogeneous between sub periods compared to much more stable evolution in the
developed country sample.
TFP shares for OECD averages, US, India, Turkey and Spain are shown in Table
8b. The previously mentioned gap between Chile and developed countries also holds for
the present sample, even so the absolute difference tends to be somewhat smaller. It should
be also noticed that India and Turkey do not show negative values for TFP growth, in
opposition to the Chilean case. Spain fits into the above profile in the long period (1850-
2000) but is similar to Chile insofar it also registers periods with negative TFP
contributions.
For Latin America, Table 8c, it can be seen that periods with negative TFP growth
are not rare. Secondly, until 1973 the Chilean TFP’s contribution to growth is clearly lower
13
than all other Latin American countries, but from that date onwards this picture changes
and eventually turns around.
Table 8d shows again data for Latin America and also including some Asian
countries. Quality adjustments for inputs seem to be absent in some cases and therefore
row 17 shows Chilean TFP growth without such corrections. Compared to the latter, our
estimates look much less different.
From these comparisons various impressions can be drawn. First, our results for the
last decades are different from those of other studies for Chile, in particular average growth
of TFP is lower and oscillations of positive and negative values are more profound.
Second, there seems to be a substantial difference among developed and poorer countries
during the 20th
century, TFP growth contribution being much higher in the first group of
countries. This generalization also holds for Chile. Third, in the context of Latin America
there is more similarity, in particular in relation to sub periods with negative contribution of
TFP to growth.
5 CONCLUSIONS AND FINAL REMARKS
From the basic data prepared for this measurement a few stylized facts provide
background material. Over the long period, 1833-2005, capital per employee multiplied by
a factor of 76, and productivity per employee by a factor of 19.6. The capital output ratio in
the first half of the 19th
century is low, but then around the 1860’s it begins to increase
continually, reaching a level 4 to 5 times higher and then fluctuating sometimes sharply
over the rest of the century. In relation to the composition of the capital stock the
importance of machinery and equipment in the total is more or less nil at the beginning of
14
the period under examination. Its relative importance increases steadily but at extremely
low rates and it is only in the last three decades where this component starts to raise its
growth.
Our main findings are:
1. Over the whole period 1833- 2005 factors adjusted for quality (K and L)
together explain 93.5 per cent of total output growth, leaving a residual for TFP equal to 6.5
2. Second, in a variance decomposition of output growth, TFP represents 64
per cent of total. This result implies a high association among TFP and total product
volatilities. TFP turns out being a mayor player in the understanding of the variability of
the output growth process. This impression is associated with both expressions, the total
growth accounting version and the labour productivity variant.
3. Years characterized by product expansions show positive TFP growth in 76
per cent of the cases and all years registering product reductions are accompanied by
negative TFP changes. But years with negative growth rates for TFP do not necessarily
imply negative product growth; moreover for years with TFP contraction, output growth
might be either positive or negative with the same probability.
4. Factor contribution, in years with positive output growth, depends only
weakly on TFP’s positive or negative character. But the combination of negative output
and TFP growth came with a significant fall in factor contribution.
5. When the output series is subdivided into endogenous generated phases, a
negative relation between GDP growth and TFP volatility becomes evident. The 1984-
2005 phase fits into the above generalization but given its TFP growth volatility, it exhibits
significantly higher output growth than predicted by past experience.
15
6. When comparing present results for the Chilean economy with measures for
other countries we take notice of the following: (i) TFP growth in developed countries has
been substantially higher when comparing with developing nations, a general feature into
which also the Chilean case fits into, a comparison; (ii) the finding mentioned in (i) above
is for the same time period; the comparison when controlling for levels of development
could not be realized; (iii)comparisons of TFP variability are restricted since year to year
data availability is not a common feature and therefore our conclusions are based on
differences among subperiods. What can be seen is that high variability and also negative
values seem to be a distinctive Chilean characteristic, so not to different from what is
possible to observe for other Latin American countries and Spain in some subperiods, an
aspect apparently not shared by other developing economies as is the case of India, Turkey
and some Asian countries.
Our general conclusion of the above findings is twofold. First, factor contribution
has been the main driving force of Chilean economic growth insofar we are basing our
analysis on productivity adjusted inputs. Second, the understanding of TFP’s growth high
volatility and negative values should be an important subject for study.
Although growth accounting is a useful descriptive device of the growth process, it
does not pretend to answer why the economy is expanding. In this sense the present
exercise, we feel, helps in broadening the view and understanding of the expansion
experienced by the Chilean economy beyond the impression generated by looking at
product series only. Long period decomposition, historical others might say, puts TFP
variability under a fresh light. This phenomena had already been noticed by the literature
but the present measurement which extends over a substantially larger time span shows that
such variability and its share of years and periods with negative values are a more common
16
phenomena than many analysts had found. In fact it can be observed not only when the
economy is exposed to extreme cycles such as the period of the Great Depression and it is
also present under quite different commercial policy and political scenarios. Exploring this
issue more systematically and in greater detail, both its demand components but also and
specially supply and resource reallocation restrictions should, we think, be a promising
future research field.
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Universidad Carlos III de Madrid, Working Papers in Economic History No. 07-02
Rojas, P.; López, E. and Jiménez, S. (1997) “Determinantes del crecimiento y estimación
del producto potencial en Chile: el rol del comercio internacional”, in Morandé, F.
and vergar, R. (eds.) Análisis empírico del crecimiento en Chile, Santiago,
CEP/ILADES, pp. 67-100
Roldós, J. (1997) “El crecimiento del producto potencial en mercados emergentes: el caso
de Chile”, in Morandé, F. and vergar, R. (eds.) Análisis empírico del crecimiento en
Chile, Santiago, CEP/ILADES, pp. 39-66
Solimano, A. (ed.) (2006) Vanishing Growth in Latin America. The Late Twentieth
Century Experience, Cheltenham, Edward Elgar
Solimano, A. and Soto, R. (2006) “Economic growth in Latin America in the late twentieth
century: evidence and interpretation”, in Solimano, A. (ed.) Vanishing Growth in
Latin America. The Late Twentieth Century Experience, Cheltenham, Edward
Elgar, pp. 11-45
Vergara, R. (2005) “Productividad en Chile: determinantes y desempeño”, Estudios
Públicos No. 99, pp. 23-62
19
Table 1a
Chilean economy: main research on growth accounting
Author
(inputs)
Period Shares GDP
growth
(%)
FC
growth
(%)
TFP
growth
(%)
TFP /
GDP
growth
(%)
This Study
TFP
growth
(%)
TFP /
GDP
growth
(%)
Elías (1992)
Adjusted
Capital;
Employment
1940-1950 α=0.53 3.3 1.4 1.9 0.5
1950-1960 α=0.50 3.5 2.8 0.7 1.2
1960-1970 α=0.55 5.0 3.7 1.3 0.8
1970-1980 α=0.50 3.1 2.1 1.0 -0.2
1940-1980 3.7 2.5 1.2 33 0.6 17
Roldós (1997)
Adjusted
Capital;
Employment
1971-1975
α=0.44
-2.0 1.5 -3.5 -4.6
1976-1980 6.8 4.1 2.7 4.2
1981-1985 -0.1 3.7 -3.8 -6.3
1986-1990 6.5 5.6 0.9 1.4
1991-1995 7.5 6.1 1.4 3.7
1971-1995 3.7 4.1 -0.4 -11 -0.3 -8
Rojas, López
and Jiménez
(1997)
Adjusted
Capital;
Employment
1961-1965
α=0.35
β=0.60
3.8 4.7 -0.9 -0.2
1966-1970 4.7 4.8 -0.1 -0.2
1971-1975 -2.2 0.5 -2.7 -6.1
1976-1980 7.5 5.3 2.2 4.2
1981-1985 -0.3 3.1 -3.4 -6.3
1986-1990 6.5 5.3 1.2 1.4
1991-1996 7.4 5.1 2.3 3.3
1961-1996 3.9 4.0 -0.1 -2.5 0.2 3
Hofman (1998)
Adjusted
Capital;
Employment
1950-1973 α=0.381 3.6 2.6 1.0 0.4
1973-1980 α=0.356 2.8 2.4 0.4 1.3
1980-1989 α=0.356 3.0 3.3 -0.3 -2.0
1989-1994 α=0.344 6.4 4.4 2.0 2.4
1950-1994 3.7 2.9 0.8 22 0.3 7
20
Table 1b
Chilean economy: main research on growth accounting
Author Period Shares GDP
growth
(%)
FC
growth
(%)
TFP
growth
(%)
TFP /
GDP
growth
(%)
This Study
TFP
growth
(%)
TFP /
GDP
growth
(%)
Coeymans
(1999 a y b)
Non Adjusted
Capital;
Employment
1961-1998 α=0.336 –
0.35 4.1 2.6 1.5 37 0.1 3
Gallego and
Loayza (2002)
Non Adjusted
Capital;
Employment
1961-1985
α=0.40
2.5 2.4 0.1 -0.9
1986-2000 6.6 4.7 1.9 1.8
1961-2000 3.9 3.2 0.7 18 0.1 3
Astorga, Bergés
and Fitzgerald
(2003)
Non Adjusted
Capital;
Employment
1900-1936
α=0.498
β=0.725
2.6 2.3 0.3 -0.7
1937-1977 3.2 3.0 0.2 0.2
1978-2000 4.6 4.0 0.6 0.4
1900-2000 3.5 3.2 0.3 8 0.1 2
De Gregorio
(2005)
Non Adjusted
Capital;
Employment
1970-1974
α=0.40
0.9 1.4 -0.5 -2.6
1975-1979 3.0 1.2 1.8 4.0
1980-1984 0.4 1.7 -1.3 -4.8
1985-1989 6.4 4.6 1.8 2.0
1990-1994 7.3 4.6 2.7 3.4
1995-1999 5.4 4.1 1.3 0.1
2000-2004 3.7 2.9 0.8 0.1
1970-2004 3.2 2.4 0.8 25 0.0 -1
21
Table 1c
Chilean economy: main research on growth accounting
Author Period Shares GDP
growth
(%)
FC
growth
(%)
TFP
growth
(%)
TFP /
GDP
growth
(%)
This Study
TFP
growth
(%)
TFP /
GDP
growth
(%)
Vergara (2005)
Adjusted
Capital;
Employment
1960-1965
α=0.55
3.8 4.0 -0.2 0.2
1966-1970 4.7 2.9 1.8 -0.2
1971-1975 -2.2 2.4 -4.6 -6.1
1976-1980 7.5 2.6 4.9 4.2
1981-1985 -0.7 2.7 -3.4 -6.3
1986-1990 6.7 4.8 1.9 1.4
1991-1995 8.7 5.2 3.5 3.7
1996-2000 4.2 4.0 0.2 -0.1
2001-2004 3.8 3.4 0.4 0.1
1960-2004 3.3 3.0 0.3 9 0.2 4
Fuentes, Larraín
and Schmidt-
Hebbel (2006)
Adjusted
Capital;
Employment
1960-1973
α=0.40
3.1 2.9 0.2 -0.3
1974-1989 2.9 3.9 -1.0 -0.6
1990-2005 5.3 2.3 3.0 1.3
1960-2005 3.6 2.9 0.7 19 0.1 4
Solimano and
Soto (2006)
Non Adjusted
Capital;
Employment
1960-1980
α=0.35
3.5 2.2 1.3 0.3
1981-2003 4.6 3.2 1.4 -0.1
1960-2003 4.1 2.7 1.4 34 0.1 3
22
Table 2
Capital, Labor and Average Productivity, 1845-2005: Stylized Facts
1905=100 C/F C/E q/h K/L Y/F Y/E Y/L
1833 10 10 100 10 27 26 36
1845 13 13 101 13 33 32 44
1865 21 20 102 21 51 50 68
1885 43 42 104 44 72 70 80
1905 100 100 100 100 100 100 100
1925 200 193 82 159 154 149 112
1945 265 262 80 208 169 167 120
1965 403 395 72 283 257 252 152
1985 469 517 53 274 261 288 123
2005 742 747 51 383 510 514 178
2005/1833 74.1 76.3 0.5 39,0 19.1 19.6 5,0
23
Table 3
Sources of Growth1833-2005
Compound Annual Rate of Growth
Rate of
Growth
(%)
Share
(α, 1- α) Contribution Contribution (%)
Y 3.33 100
K 4.56
0.34
1.55 46.6
C 4.15 1.41 42.4
q 0.41 0.14 4.2
L 2.36
0.66
1.56 46.9
E 1.56 1.03 30.9
h 0.80 0.53 16.0
A
0.22 6.5
24
Table 4
Average Labor Productivity and Contribution to Growth: 1833-2005
Compound Annual Rate of Growth
Rate of Growth (%) Contribution Contribution
(%)
YE 1,75 100
CE 2,55 0,87 50
q 0,41 0,14 8
h 0,80 0,53 30
FOM 1,53 88
TFP 0,21 12
25
Table 5a
Decomposition of Total Product Growth, 1833-2005
A Taxonomy
TFP Rate of Growth
>0 0
Total Product
Rate of
Growth
>0
: 106
: 6.82
: 3.58
: 3.24
: 0.90
N
Y
FC
TFP
TFP
FC
: 32
: 1.89
: 3.37
: 1.48
: 0.44
N
Y
FC
TFP
TFP
FC
0 -
: 34
: 6.46
: 1.18
: 7.64
: 6.50
N
Y
FC
TFP
TFP
FC
N : number of years
Y : Average growth of GDP
FC : Average growth of Factor Contribution
TFP : Average growth of Total Factor Productivity
26
Table 5b
Decomposition of Labor Productivity Growth, 1833-2005
A Taxonomy
TFP Rate of Growth
>0 0
Labor
Productivity
Rate of
Growth
>0
: 106
/ : 4.42
: 1.18
: 3.24
: 2.75
N
Y E
FOM
TFP
TFP
FOM
: 22
/ : 0.80
: 1.84
: 1.04
: 0.57
N
Y E
FOM
TFP
TFP
FOM
0 -
: 44
/ : 4.27
: 2.19
: 6.46
: 2.95
N
Y E
FOM
TFP
TFP
FOM
N : number of years
Y/F : Average growth of Labour Productivity
FOM : Average growth of Factor Only Model
TFP : Average growth of Total Factor Productivity
27
Table 6
Sources of Growth 1833-2005
Least Squares Annual Rate of Growth, % Per Decade Y K C q L E h FC TFP
1833-1840 3.11 4.13 4.21 -0.08 1.34 1.43 -0.09 2.28 0.81
1841-1850 4.09 3.47 3.56 -0.09 1.38 1.49 -0.11 2.08 1.97
1851-1860 2.99 3.76 3.41 0.33 1.26 1.23 0.03 2.10 0.87
1861-1870 3.83 4.14 3.97 0.17 2.31 1.70 0.60 2.93 0.87
1871-1880 3.56 7.42 5.88 1.45 2.58 1.72 0.84 4.20 -0.61
1881-1890 1.84 6.22 5.16 1.01 1.28 0.71 0.56 2.93 -1.06
1891-1900 2.68 6.19 5.59 0.57 1.50 0.91 0.58 3.07 -0.38
1901-1910 4.11 5.36 4.99 0.35 2.83 1.23 1.59 3.69 0.41
1911-1920 0.13 4.51 4.25 0.25 2.13 0.50 1.62 2.93 -2.73
1921-1930 5.20 3.84 3.52 0.31 1.88 1.56 0.32 2.54 2.59
1931-1940 7.18 3.11 3.25 -0.14 3.95 3.73 0.22 3.67 3.39
1941-1950 3.55 3.13 3.16 -0.04 2.50 1.89 0.60 2.71 0.82
1951-1960 3.44 3.94 3.46 0.47 1.55 0.67 0.87 2.36 1.06
1961-1970 4.31 3.98 3.80 0.17 3.38 1.93 1.42 3.59 0.70
1971-1980 1.59 2.63 2.49 0.14 1.81 0.05 1.76 2.08 -0.48
1981-1990 3.83 3.07 2.48 0.58 6.69 5.11 1.51 5.45 -1.54
1991-2000 6.20 7.74 6.40 1.26 2.88 1.94 0.93 4.51 1.62
2001-2005 4.53 4.81 4.69 0.12 4.08 3.05 1.00 4.33 0.19
1833-2005 3.08 4.60 4.17 0.41 2.27 1.41 0.85 3.06 0.02
28
Table 7
Sources of Growth 1833-2005
Least Squares Annual Rate of Growth and Volatility, Per Growth Phase LSARoG (%) Desv. Std. of
Annual Rate of Growth
Y FC FOM TFP FC FOM TFP
1833-1880 3.42 2.51 1.04 0.89 0.01 0.01 0.03
1881-1917 2.87 3.27 2.33 -0.38 0.01 0.00 0.06
1918-1950 2.68 2.53 0.78 0.15 0.03 0.02 0.09
1951-1983 3.03 2.94 1.81 0.09 0.02 0.01 0.05
1984-2005 6.04 4.60 1.84 1.38 0.01 0.01 0.03
29
Table 8a
TFP Growth / Output Growth
A Comparative View
1890-
2006
1890-
1913
1913-
1950
1950-
1973
1973-
1980
1980-
2006
(1) France 0.83 0.74 1.67 0.75 0.62 0.62
(2) Japan 0.48 0.48 0.32 0.58 0.26 0.43
(3) United Kingdom 0.51 0.47 0.77 0.41 0.50 0.44
(4) United States 0.44 0.32 0.72 0.43 0.04 0.29
(5) Chile 0.00 -0.01 -0.21 0.10 0.38 0.01
Sources: (1) - (4) Cette et al. (2009); (5) this research
30
Table 8b
TFP Growth / Output Growth
A Comparative View
Source Country or
Region Period TFP Share Chile TFP Share
Easterly and
Levine (2001)
OECD 1947-1973 0.50 0.16
OECD 1960-1990 0.39 -0.13
East Asia 1966-1990 0.14 -0.32
Aghion and
Howitt (2007) OECD 1960-2000 0.68 0.04
Bosworth et al.
(2007) India
1960-2004 0.26 0.04
1960-1980 0.06 0.09
1980-2004 0.34 0.01
1960-1973 0.06 -0.08
1973-1983 0.14 -0.52
1983-1993 0.34 0.12
1993-1999 0.40 0.23
1999-2004 0.33 0.06
Gordon (1999) United States
1871-1891 0.05 0.02
1891-1913 0.19 -0.06
1913-1928 0.32 -0.12
1928-1950 0.37 -0.29
1950-1964 0.51 0.28
1964-1972 0.40 0.05
1972-1979 0.29 -0.36
1979-1988 0.11 -0.77
1988-1996 0.13 0.36
Altug et al.
(2008) Turkey
1880-1913 0.16 -0.03
1914-1929 0.06 0.27
1930-1949 0.15 0.00
1950-1979 0.16 0.14
1980-2005 0.27 0.01
Prados and Rosés
(2007) Spain
1850-2000 0.31 0.02
1850-1950 -0.09 -0.03
1951-1974 0.54 0.10
1975-2000 0.58 0.16
1850-1883 -0.11 0.14
1884-1920 0.03 -0.29
1921-1929 0.19 0.60
1930-1952 -0.22 0.08
1953-1958 0.37 0.35
1959-1974 0.58 0.03
1975-1986 1.34 -0.12
1987-2000 0.11 0.28
31
Table 8c
TFP Growth / Output Growth
A Comparative View
1940-
1980
1950-
1973
1973-
1980
1980-
1989
1989-
1994
1990-
2002
(1) Latin America 0.27
(2) Argentina 0.25 -0.03 3.25 0.68
(3) Brazil 0.27 0.07 -0.68 -1.67
(4) Chile 0.29 0.14 -0.29 0.32
(5) Colombia 0.30 0.09 -0.28 0.10
(6) Mexico 0.11 -0.04 -1.85 -0.21
(7) Venezuela 0.23 -0.60 308.00 0.45
(8) Bolivia 0.65 -0.18 -11.10 0.11
(9) Ecuador 0.51 0.23 -1.09 -0.29
(10) Peru 0.41 -0.13 4.28 0.30
(11) Andean region 0.48 -0.02 -1.67 0.09
(12) Chile 0.17 0.10 0.38 -0.69 0.33 0.27
Sources: (1) Easterly and Levine (2001); (2) – (7) Hofman (1998); (8) – (11) Aravena et al. (2006); (12) this
research
32
Table 8d
TFP Growth / Output Growth
A Comparative View
1960-
2003
1965-
2003
1970-
2003
1960-
1980
1965-
1980
1970-
1980
1981-
2003
(1) Argentina 0.27 0.43 -0.27
(2) Brazil 0.10 0.28 -0.65
(3) Bolivia 0.21 0.47 -0.35
(4) Chile 0.34 0.37 0.33
(5) Colombia 0.27 0.34 0.13
(6) Costa Rica 0.16 0.23 0.08
(7) Dominican
Republic 0.39 0.47 0.17
(8) Ecuador 0.28 0.57 -0.57
(9) Mexico 0.13 0.31 -0.33
(10) Peru 0.00 0.24 -0.61
(11) Uruguay 0.60 0.50 0.89
(12) Venezuela -0.30 0.06 -3.00
(13) Korea 0.45 0.53 0.36
(13) Philippines 0.26 0.46 -0.07
(15) Thailand 0.42 0.44 0.38
(16) Chile 0.03 0.02 -0.02 0.09 0.10 -0.08 -0.02
(17) Chile (NAI) 0.46 0.46 0.38 0.73 0.90 0.69 0.31
Sources: (1) – (15) Solimano and Soto (2006); (16) – (17) this research (NAI: non adjusted inputs)
33
Figure 1
Capital output ratios, 1833-2005: Stylized Facts
Total, Machinery and Infrastructure
Source: Diaz and Wagner (2009)
34
Figure 2
Sources of Growth 1833-2005
Least Squares Rate of Growth, Per Decade
35
Figure 3
Volatility of Factor Contribution and TFP Growth: Chile, 1833-2005
Std. Dev., Per Decade
36
Figure 4
Sources of Labor Productivity Growth: 1833-2005
Least Squares Rate of Growth, Per Decade
37
Figure 5
TFP Growth, 1960-2005
2005=100
38
Figure 6
Comparison of Capital Indicators, 1960-2005
1960=100
39
ANNEX
DATA SOURCES AND METHODS
A DATA
GDP and population: Díaz, Lüders and Wagner (2007)
Investment and Capital: Díaz and Wagner (2009). Two types of investment are
distinguished: machinery and equipment, and infrastructure. Before 1940 the first is
based on imports of capital goods, the second on fiscal infrastructure expenditures.
Capital goods imports are deflated by a price index based on Feinstein (1972),
Feinstein and Pollard (1988) and Kuznets (1961), using Chilean weights. The 1940-
2005 data comes from national accounts. Capital is constructed with investment
data using a perpetual inventory method.
Employment (E): obtained as a product between labor force and 1 minus unemployment
rate. Labor force comes from interpolated census data (from 1985 onwards the
source is the national statistical office, data similar to implicit census levels).
Assuming Okun relationship, the unemployment rate was estimated with LSO
coefficients obtained from the period 1960-2005.
Capital quality (q): is an index in the Christensen et al. (1980) fashion, where the basic
ingredient is the relative importance of machinery capital.
Labor quality (h): is the average level of years of schooling of total population based on
Braun et al. (2000) and Fuentes et al. (2006) for recent decades. Since average
years of schooling are near to cero (half a year) in the 1830´s a correction was
introduced for the initial level of human capital. Schooling is the modern
technology for human capital formation and in this sense an outcome of
specialization and growth of the economy. In those early years abilities and
knowledge of artisans and other specialists was produced by a “learning by doing”
process, observation and teaching at the family level and in some cases canalized
thru institutions like apprenticeship.
B COEFFICIENT ESTIMATION AND GROWTH ACCOUNTING
From the Cobb-Douglas specification, restricted to constant returns to scale, 1Y AK L , applying logs we have 0 1 2ln ln lnY a a K a L , where 0 lna A , 1a
and 2 1a . Unfortunately, the direct estimation of this function is not possible since
variables do not cointegrate: while lnY and lnK are I(1), lnL is I(2). However if the original
function is divided by L, then it can be expressed as y Ak , where y=Y/L and k=K/L.
Now, in logs we have 0 1ln lny a a k , an expression where lny and lnk are I(1); therefore
40
it is assumed that the OLS estimation is consistent. This equation is estimated over the
whole 1833-2005 period generating a statistically significant ˆ 0.341281 0.34 .
For evaluating the stability of this coefficient we also estimate a quantile regression
(range: 10 quantiles) equivalent to a rolling regression. Capital’s share stays around 0.36
from 1833 up to the 1880’s, falling then to about 0.33 in 1919, level that does not
experiences much change over the 20th century. The TFP obtained with these coefficients
and that computed with ˆ 0.34 do not show a significant difference.
