U.S. Total Factor Productivity Slowdown: Evidence from the U.S. States

IMF Working Papers, May 28, 2015

Source details

Canonical URL: U.S. Total Factor Productivity Slowdown: Evidence from the U.S. States

Total factor productivity (TFP) growth began slowing in the United States in the mid-2000s, before the Great Recession.
The commonly cited cause—the fading positive impact of the information technology (IT) revolution of the 1990s—is not sufficient to explain the observed slowdown across states.
Estimates of TFP growth across the U.S. states show the slowdown was quite widespread and not particularly stronger in IT-producing states or in states with relatively more intensive usage of IT.
An alternative explanation offered in the paper is that the slowdown in U.S. TFP growth reflects a loss of efficiency or market dynamism over the last two decades.
There are large differences in production efficiency across U.S. states; states with better educational attainment and greater investment in R&D are closer to the production “frontier.”

TFP slowdown timing: mid-2000s (preceding the Great Recession).
Geographic pattern: slowdown widespread across states; not concentrated in IT-producing or high-IT-usage states.
Methodology note: the paper produces estimates of TFP growth across U.S. states to assess heterogeneity in the slowdown.

IT explanation: the fading positive impact of the 1990s IT revolution is a widely cited hypothesis but does not align with state-level patterns observed.
Alternative explanation: loss of efficiency or market dynamism over the last two decades is proposed as a key contributor to the TFP slowdown.
Production frontier: proximity to the production “frontier” is associated with better educational attainment and greater investment in R&D.