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GEP 17/11: Measuring productivity and absorptive capacity evolution

Measuring Productivity and Absorptive Capacity Evolution

Summary

The theoretical literature on economic growth has over the past three decades focused almost exclusively on technological progress as the major driver for growth and development. In the empirical literature there is a long tradition of quantifying ‘foreign’ elements of technological progress by assuming specific channels through which international knowledge spillovers can occur and/or pinpointing country characteristics deemed synonymous with ‘absorptive capacity’ – the notion that despite the designation of knowledge as a public good technological catch-up is by no means guaranteed, but requires considerable efforts and investments. Human capital attainment and investment in research and development (R&D) and their interactions are frequently employed as proxies for absorptive capacity. The most prominent channels for spillovers are arguably the patterns of international trade, foreign direct investment and international migration.

In this paper Stef De Visscher, Markus Eberhardt, and Gerdie Everaert introduce a new way to estimate macro-production functions adopting an unobserved component model and Bayesian econometric methods. The advantage of their approach is that they do not need to adopt proxies for absorptive capacity or specify explicit channels through which global technology can transfer to individual countries. This contribution to empirical methodology allows researchers to employ widely-available data for factor inputs (capital, labour) and GDP or value-added (at the aggregate or sector level) in order to arrive at policy-relevant insights for industrial and innovation policy. They illustrate their approach using data for 31 advanced economies showing the dynamic evolution of global technological progress and country-specific absorptive capacity. They demonstrate the close relationship between the latter and salient indicators of growth-enhancing economic policy. In ongoing research they apply their methodology to the study of developing economies, where the absence of tangible measures of innovation efforts and the range of candidate variables to analyse absorptive capacity and spillover channels has thus far prevented the emergence of a consensus on growth-enhancing policies in the literature.

De Visscher, Stef, Markus Eberhardt, and Gerdie Everaert. 2017. “Measuring Productivity and Absorptive Capacity Evolution.” University of Nottingham GEP Discussion Paper 2017/11.

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Authors

Steff De Visscher, Markus Eberhardt and Gerdie Everaert

 

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Posted on Monday 22nd January 2018

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