A Proposal to Improve Country-Level Data on Total Factor Productivity Growth

IMF Working Papers, March 22, 2024

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The common data on national capital stocks and total factor productivity (TFP) assume countries were in a steady state in the first year that investment data became available.
The paper argues that this steady-state assumption is highly implausible and generates implausible data on the ratio of capital to output and on productivity growth.
It is asserted that it is not credible that countries with similar incomes had huge differences in their capital stocks.
The paper presents evidence that implausible features of the data can be greatly reduced by using data on electricity usage or national stocks of road vehicles.

The steady-state assumption in initial-year investment-data-based capital stock estimates is necessarily responsible for implausible capital-to-output ratios and productivity growth figures.
Implausible cross-country differences in capital stocks among countries with similar incomes are highlighted as a critical data anomaly.
Using electricity usage data or national stocks of road vehicles can greatly reduce these implausible features in the capital stock and TFP data.

The paper claims, with evidence, that alternative observable series—specifically electricity usage and national stocks of road vehicles—are useful for improving country-level estimates of capital stocks and TFP growth.
No additional methodological details are provided on the landing page beyond the claim that these data reduce implausible features.

Improve country-level data on capital stocks and TFP growth by incorporating electricity usage or national stocks of road vehicles into capital-stock estimation practices.
Reevaluate the standard steady-state assumption for the first year with investment data to avoid implausible capital-to-output ratios and productivity-growth measures.

Subject: Capital adequacy requirements, Capital productivity, Commodities, Electricity, Financial institutions, Financial regulation and supervision, Production, Stocks, Total factor productivity
Keywords: Africa, capita-output ratio, Capital adequacy requirements, capital output ratio, Capital productivity, Economic Growth, Electricity, Global, investment data, Productivity, Stocks, TFP growth estimate, Total Factor Productivity, total factor productivity growth