on the determinants of bolivia's economic growth: production puzzles

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On the Determinants of Bolivia's Economic Growth: Production Puzzles

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  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    A Comparative Analysis On the Determinants of

    Bolivias Economic Growth: Production Puzzles

    (Master Thesiss Chapters 2,3,4)

    Carlos A. Mendez Guerrahttps://sites.google.com/site/carlosmendez777

    Graduate School of International DevelopmentNagoya University

    Novermber 8th, 2011

    Carlos Mendez (GSID) Productivity Puzzles 1/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    Outline

    1 Research Progress: Whats new?

    2 Stochastic Trends and Production Parameters

    3 Factor Accumulation and Productivity Growth

    4 Investment and Productivity Determinants

    5 Steps ahead

    Carlos Mendez (GSID) Productivity Puzzles 2/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    Outline

    1 Research Progress: Whats new?

    2 Stochastic Trends and Production Parameters

    3 Factor Accumulation and Productivity Growth

    4 Investment and Productivity Determinants

    5 Steps ahead

    Carlos Mendez (GSID) Productivity Puzzles 3/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    Research Progress: What is new?

    Results update based on new data sets: Extended Penn WorldTables V.( 4.0) and Penn World Tables V.(7.0)

    New comparative analysis over time (46 years) and space (6countries).

    New analytical chapters:

    Chapter 2: Stochastic Trends and Production FunctionParametersChapter 4: Investment and Productivity Determinants

    Carlos Mendez (GSID) Productivity Puzzles 4/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    Outline

    1 Research Progress: Whats new?

    2 Stochastic Trends and Production Parameters

    3 Factor Accumulation and Productivity Growth

    4 Investment and Productivity Determinants

    5 Steps ahead

    Carlos Mendez (GSID) Productivity Puzzles 5/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    Fitting a Geometric Growth Process

    yt = y0egt ln(yt) = ln(y0) + gt +

    9.5

    1010

    .511

    ln(JA

    PAN

    s GDP

    per w

    orker)

    JAPAN: g=2.6%*** R2=0.86; BOLIVIA: g=0.07% R2=0.01 8.

    88.

    99

    9.1

    ln(B

    OLIV

    IAs

    GDP

    per w

    orker)

    1960 1970 1980 1990 2000 2010Year

    95% CI Fitted values ln( GDP per worker)

    Source: Authors calculations using data from Penn World Tables V. 7.0

    Carlos Mendez (GSID) Productivity Puzzles 6/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    Stochastic Trends and Unit Roots

    Why a deterministic linear trend is not measurable in thegrowth process of Bolivia?

    Stochastic trends, structural breaks, steady state (povertytrap)?

    If a stochastic trend is present, is it possible to indentifysignificant long term relations among macroeconomicvariables?

    If macroeconomic variables like GDP or Investment have astochastic trend, then shocks to these variables havepermanent effects, whereas in traditional business cycle theorythe effect of shocks on real GDP would usually be consideredonly temporary.

    Carlos Mendez (GSID) Productivity Puzzles 7/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    Factor Shares and Production FunctionParameters

    Economists have long studied labor and capitals share ofnational income as indicators of income distribution.

    Data availability of labors share has also been seen as offeringinsights into the shape of the aggregate production function.

    Generally, studies of developed economies support the long-standing observation (Kaldor Fact) that factors shares ofnational income are relatively constant over time and acrosscountries.

    However, looking at the data of developing countries,important differences are observable between thegeneralization of the Kaldor fact and the reported factorshares.

    Discrepancy: Data vs Common wisdom

    Carlos Mendez (GSID) Productivity Puzzles 8/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    Is it a Naive Calculation of the CapitalShare?

    Capital Share = 1 - Labor Share.3

    .4

    .5

    .6

    .7

    .8

    Capi

    tal S

    hare

    in N

    atio

    nal I

    ncom

    e Ac

    coun

    ts

    1963 1973 1983 1993 2003year

    Nat. Accounts (0.68) Nat. Accounts HPtrend (0.68)Kaldor Fact (1/3)

    Source: Authors calculations using data from the United Nations Data Base, Bolivias National Accounts MainAggregates

    Carlos Mendez (GSID) Productivity Puzzles 9/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    Reseach Questions

    1 Do the main production aggregates of the Bolivian economycontain stochastic trends? If so , is it possible to identify longterm relationships among them ?

    2 Considering the noticiable difference between the conventionalwisdom and the naive capital share , what other estimates offactor shares can be considered to understand the distributionof income between capital and labor in Bolivia?

    3 How can the Bolivian economy be characterized in terms ofreturns to scale and the degree of substitution between capitaland labor?

    Carlos Mendez (GSID) Productivity Puzzles 10/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    A First Look at the Data

    Levels Growth Rates

    Mean Std. Dev. Min Max Mean Std. Dev. Min Max

    GDP (Output) 2.0E+10 6.6E+09 1.1E+10 3.6E+10 2.69 3.96 -14.95 8.16Capital Stock 1.9E+10 4.8E+09 1.2E+10 3.0E+10 2.12 3.30 -4.95 11.54Labor 2.6.E+06 8.4.E+05 1.5.E+06 4.4.E+06 2.37 0.38 0.83 3.04Output/Labor 7,559 634 6,481 8,889 0.32 3.93 -16.80 6.33Capital/Labor 7,646 1,085 5,774 9,670 -0.24 3.33 -7.47 8.96Output/Capital 1.00 0.12 0.85 1.26 0.57 4.31 -18.23 8.43Capital/Output 1.01 0.12 0.79 1.18 -0.56 4.30 -8.54 17.72Investment/Labor 999 251 569 1,641 -0.19 20.42 -56.17 47.04

    Source: Authors calculations using data from Extended Penn World Tables V. 4.0

    Carlos Mendez (GSID) Productivity Puzzles 11/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    2323

    .524

    24.5

    log(G

    DP)

    1963 1973 1983 1993 2003year

    15

    10

    5

    05

    10G

    DP g

    rowt

    h ra

    te

    1963 1973 1983 1993 2003year

    23.2

    23.4

    23.6

    23.8

    2424

    .2lo

    g(Cap

    ital S

    tock)

    1963 1973 1983 1993 2003year

    5

    05

    1015

    Capi

    tal g

    rowt

    h ra

    te

    1963 1973 1983 1993 2003year

    Carlos Mendez (GSID) Productivity Puzzles 12/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    8.6

    8.8

    99.

    2lo

    g(Cap

    ital/L

    abor)

    1963 1973 1983 1993 2003year

    10

    5

    05

    10Ca

    pita

    l/Lab

    or g

    rowt

    h ra

    te

    1963 1973 1983 1993 2003year

    .2

    .1

    0.1

    .2

    log(O

    utput/

    Capit

    al)

    1963 1973 1983 1993 2003year

    20

    10

    010

    Out

    put/C

    apita

    l gro

    wth

    rate

    1963 1973 1983 1993 2003year

    Carlos Mendez (GSID) Productivity Puzzles 13/69

  • CH2: Stochastic Trends and Production ParametersCH3: Factor Accumulation and Productivity Growth

    CH4: Investment and Productivity Determinants

    MotivationAnalysis and ResultsFinal Remarks

    .2

    .1

    0.1

    .2

    log(C

    apita

    l/Outp

    ut)

    1963 1973 1983 1993 2003year

    10

    010

    20Ca

    pita

    l/Out

    put g

    rowt

    h ra

    te

    1963 1973 1983 1993 2003year

    6.4

    6.6

    6.8

    77.

    27.

    4lo

    g(Inv

    estm

    ent L

    abor)

    1963 1973 1983 1993 2003year

    60

    40

    20

    020

    40In

    vest

    men

    t/Lab

    or g

    rowt

    h ra

    te

    1963 1973 1983 1993 2003year

    Carlos Mendez (GSID) Productivity Puzzles 14/69

  • CH2: Stochastic Trends and Production Paramete

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