Unveiling the Hidden Impact of Urban Land Rents on Total Factor Productivity
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Summary:
This paper addresses the puzzling decline of Total Factor Productivity (TFP) levels in rapidly growing economies, such as Singapore, despite advancements in technology and high GDP per capita growth. The paper proposes that TFP growth is not negative; instead, standard growth decompositions have underestimated TFP growth by overestimating the contribution of capital, failing to account for the substantial part of capital income directed to urban land rents. This leads to an overestimation of changes in capital stock's contribution to growth and thereby an underestimation of TFP growth. A revised decomposition suggests that TFP growth in economies with high land rents and rapid capital stock growth, such as Singapore, has been considerably underestimated: TFP levels have not declined but increased rapidly.
Series:
Working Paper No. 2023/170
Subject:
Capital income Financial institutions Land prices National accounts Population and demographics Prices Production Stocks Total factor productivity
Frequency:
regular
English
Publication Date:
August 25, 2023
ISBN/ISSN:
9798400252808/1018-5941
Stock No:
WPIEA2023170
Format:
Paper
Pages:
42
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