Abstract
Measuring labor and capital services accurately is essential to obtaining reliable estimates of production functions and total factor productivity (TFP) growth. Using data on the operating time of capital, a series that exists for the French business sector, greatly improves the measurement of effective capital services in production. The ensuing estimation results are consistent with Cobb–Douglas technology under constant returns to scale, with the factor elasticities not statistically different from their income shares. In the same framework, TFP growth is estimated as a latent variable and found to be less volatile than accounting residuals, negatively correlated with employment, and free of cyclicality. It is statistically best estimated as a first-order autoregressive process, with an autoregressive coefficient of 0.95. Total factor productivity growth was estimated to have declined steadily between the mid-1970s and mid-1990s, but the rate of decline has diminished since then.
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The authors are indebted to the Banque de France for providing the data on the utilization of capital, to Tam Bayoumi, Robert Ford, Marcello Estevão, and two anonymous referees for helpful comments; to Jim Hamilton for an important technical clarification; and to Susan Becker for efficient data management. Errors and omissions remain the authors‘ sole responsibility. The views expressed in this paper are those of the authors and not of the International Monetary Fund, with which the authors are affiliated.
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Everaert, L., De Simone, F.N. Improving the estimation of total factor productivity growth: capital operating time in a latent variable approach. Empirical Economics 33, 449–468 (2007). https://doi.org/10.1007/s00181-006-0109-y
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DOI: https://doi.org/10.1007/s00181-006-0109-y