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What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Heckscher‐Ohlin‐Samuelson (HOS), two‐good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions. This follows from a continuous‐time analysis using Divisia index numbers. However in the case where imports are intermediate inputs and competition is imperfect, an improvement in the terms of trade does raise GDP: the size of the effect depends on the size of the markup of price over marginal revenue. I argue that the continuous time Divisia approach is the right framework for national income accounting, even though it can only be implemented approximately in practice. If the aim is to find the best approximation to the Divisia index, then the chained Fisher index (as used in the US and Canadian national accounts) or the chained Törnqvist are better approximations than is the chained Laspeyres (as used in Europe). [ABSTRACT FROM AUTHOR]

We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labor productivity and a long-run effect on its level is estimated on 61 countries over 1954-2010. A banking crisis as defined by Reinhart and Rogoff reduces the long-run level of GDP per worker, and also that of capital per worker, by on average 1.1 percent, for each year that the crisis lasts; it also reduces the TFP level by 0.8%. The long run, negative effect on the level of GDP per capita, 1.8 percent, is substantially larger. So there is also a hit to employment. The effects on labor productivity, capital and TFP are larger in developing than in developed countries; the opposite is the case for employment. [ABSTRACT FROM AUTHOR]

I set out a general algorithm for calculating true cost-of-living indices when demand is not homothetic and when the number of products may be large. The non-homothetic case is the important one empirically (Engel's Law). The algorithm can be applied in both time series and cross section. It can also be used to estimate true producer price indices and Total Factor Productivity in the presence of input-biased economies of scale and technical change. The basic idea is to calculate a chain index of prices but with actual budget (cost) shares replaced by compensated shares, i.e. what the shares would have been if consumers (firms) faced actual prices but their utility (output) were held constant at some reference level. The compensated shares can be derived econometrically from the same data as are required for the construction of conventional index numbers. The algorithm is illustrated by applying it to estimating true PPPs for 141 countries and 100 products within household consumption, using data from the World Bank's latest International Comparison Program. [ABSTRACT FROM AUTHOR]

Should we use ex post or ex ante measures of user costs to calculate the contribution of capital in a growth accounting exercise? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalized across assets. But this is only true if expectations are correct. In general, the ex post rate of return differs between assets, even though ex ante it is the same. I propose a hybrid method. The index of capital services is estimated using ex ante weights; the contribution of capital is the growth of this index multiplied by the ex post income share of capital. I show that this method is theoretically correct if the production function is CES. I compare the ex post, ex ante and hybrid methods using data for 31 U.K. industries from 1970 to 2000. [ABSTRACT FROM AUTHOR]

While GDP is the appropriate measure of output, I argue that Weitzman's NDP (WNDP)—nominal net domestic product deflated by the price of consumption—is the appropriate measure of welfare. Total factor productivity (TFP) growth measures the shift in the GDP frontier, and there is an analogous concept for WNDP, which I call total factor welfare (TFW) growth. I calculate and compare WNDP and GDP, and TFP and TFW, for the United States in the 1990s. I find that the acceleration of WNDP post 1995 was as great as that of GDP, even though the aggregate depreciation rate was rising. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to examine the connection between the distribution of income and the distribution of education. Section I of the paper contains a brief critique of the human capital approach to income distribution, pioneered by Becker (1964). As developed so far, the human capital approach seems incomplete, since the distribution of income is made to depend on the distribution of education but the latter is not explained. In the subsequent sections, more general models are examined in which the two distributions are determined simultaneously. Essentially, these models combine the human capital approach to education with the marginal productivity theory of factor pricing. It is found that when equality of opportunity and ability is assumed, the models do not in general produce an income distribution curve which conforms to the empirically established character of such curves. The concluding section discusses how far inequality of opportunity and ability and the presence of disequilibrium may affect the theoretically derived distribution of income. [ABSTRACT FROM AUTHOR]

The paper constructs estimates of labour productivity in three broad service sectors including distribution, transport and communication and financial and business services and for ten sub-sectors within these broad categories. It compares Great Britain with the U.S., Germany and France. These sectors are referred to as market services, cover most private service activities with the exception of personal services and domestic service. Defining market services as distribution, hotels and catering, transport and communications and financial and business services accounted for 34-43 percent of total employment in the four countries studied and 36-43 percent of GDP. For labour productivity in market services as a whole, France led Great Britain by 36 percent in 1993, Germany led Great Britain by 34 percent and the U.S. led Great Britain by 38 percent. There is a considerable difference between the ranking of countries in terms of living standards and in terms of productivity. The main reason is that there is a marked variation in the proportions of the population who work.

I apply the method of Caballero and Lyons to industry-level data for UK manufacturing. I find evidence for a positive external effect, arising from the expansion of manufacturing as a whole. But expansion at the sectoral level was found not to generate external effects. Nor was any evidence found for increasing returns which are internal to the industry: here returns appear to be constant. I argue that external effects at the level of aggregate manufacturing cannot be explained away as due to measurement error or cyclical effects. However, alternative explanations, such as economy-wide shocks, cannot be totally excluded. [ABSTRACT FROM AUTHOR]

Maurice Scott has argued that the neoclassical production function and growth accounting are fundamentally flawed as tools for understanding the growth process. If the role of capital were correctly evaluated, then (he argues) the famous 'residual' of growth accounting would disappear. Contrary to these claims, this paper seeks to show that growth accounting gives correct answers to interesting questions, even when all technical progress is embodied in new capital goods and even when depreciation is entirely due to obsolescence. [ABSTRACT FROM AUTHOR]

We study the growth of employment at the company level using a very large database of company accounts. More than 31 000 independent companies were studied over 1986-95, though we concentrate on the 8 103 companies which survived throughout the period. We find that smaller companies grew relatively to larger ones in each of the cyclical phases studied, 1986-89, 1989-92 and 1993-95. But their advantage diminished steadily. Despite the negative effect of size on employment growth, and downsizing amongst the largest companies, over half the net new jobs created in survivors were in companies with more than 500 employees. [ABSTRACT FROM AUTHOR]