MEASUREMENT PROBLEMS OF TFP PERFORMANCE IN AN UNSTABLE ECONOMY: ARGENTINA 1990-2004

1. MEASUREMENT PROBLEMS OF TFP PERFORMANCE IN AN UNSTABLE ECONOMY: ARGENTINA 1990-2004 “A Case of the Tyranny of Methodology” ARIEL COREMBERG ECLAC Buenos Aires CONICET/IDES acorem@fibertel.com.ar acoremb@yahoo.com.ar The 2008 World Congress on National Accounts and Economic Performance Measures for NationsMay 12–17, 2008Key Bridge Marriott (Arlington, VA—minutes from Washington D.C.)

2. (T. J. Koopmans 1947) This research applies the famous Koopman`s motto: “It is necessary to avoid Measurement without theory” • (J. Hicks 1981)“ The measurement of capital is one of the nastiest jobs that economists have set to statisticians”. • Z.Grilliches (1990): “procyclical fluctuations in ‘productivity’ do not make sense if we want to interpret them as a measure of the growth in the level of technology or the state of economically valuable knowledge of an economy. The US. Economy did not forget 4% of its technology between 1974 and 1975.” • D. Jorgenson (1995): the productivity term A reflects all those effects on output growth that are not investment, where investment is understood as the commitment of current resources in the expectation of future returns, implying that these returns can be internalised by the investor. • Heymann, Galiani y Tomassi (2004): Agents make economic decisions taking the cycle as a trend: a correct identification of TFP is important in the context of sustainability of macroeconomic configuration, wealth perceptions and competitiveness of an economy

3. OBJETIVE • IDENTIFICATION OF TREND AND GROWTH PROFILE • SUSTAINABILITY OF GROWTH AND COMPETITIVENESS IN THE LONG RUN: STRICT TFP • EMERGING UNSTABLE ECONOMIES WITH RELATIVE PRICE VOLATILITY AND INCONCISTENT MACROPOLICIES • ARGENTINA 1990-2004: WHAT ABOUT STRICT TFP?

4. ARGENTINA-STYLIZED FACTS: 90´S • 90`s: deregulation & privatization, trade & financial openness • apparent productivity gains compensate real appreciation due to convertibility plan • Lower relative capital costs: K intensity • Previous Underutilization of K:  Ku (60-75) • After Brazilian devaluation, inconsistent macro policy could not generate S and TFP in l.r.

5. ARGENTINA-STYLIZED FACTS: 02-08 • 2002 Devaluation and “Corralito”: double real exchange rate: import substitution and increase in exports + growth in aggregate demand: improvement in terms of trade as permanent • High decreases in labor costs and Previous Underutilization of K & L : Ld(ul: 20-10%) and Ku (55-73)

6. SOURCE OF GROWTH • Increase in capital intensity • Improvements in productive organization independently of factor endowments (TFP) • Changes in the composition of GDP, K, L • Quality changes in primary inputs • Cyclical Changes in the Utilisation of Productive Factors: Labour intensity L and K Utilization

7. BASIC SOURCE OF GROWTH: TFP OR k y B Eb yb A E* y* E** ya Ea 0 k ka kb

8. TFP OR KU y A E0 y0 B E1 y1 E1’ 0 k k1 k0

9. TFP TYPOLOGIES • APARENT TFP: INCLUDE QUALITY, COMPOSITION & UTILIZATION EFFECTS • STRICT TFP : SHIFTS IN PRODUCTION FUNCTION DUE TO ORGANIZATION IMPROVEMENT (excludes Q, C, U effects)

10. Intensive Form Extensive Form Abramovitz: Solow´s Residual is the measurement of our ignorance Grilliches: non-measure factors and error measurement are in the Residual Identification of Basic Source of Growth

11. Index Numbers • Tornquist Index

12. Composition Effects Quality Effects Utilization Effects

13. EXHAUSTIVE GROWTH ACCOUNTING

14. MAIN RESULTS

15. GDP

19. LABOR INPUT

20. MEDICI O N DEL INSUMO TRABAJO ( OECD ) Jobs Adjustment by Part Time jobs And Double Occupation - Employees Self Employees and others Nr. Of Workers Hours Worked Hourly Labor By worker By worker Nr. Hours Worked Labor Differentation Explicit Implicit Hours Worked Hours Worked Differentiated by By industry Worker characteristics • Hs. Worked vs Jobs • Inclusion Self Employed • Another Input • Imputation of Labor Compensation of Self Employed with the Wages of Employees by Sector • Imputation of Internal Rate of Return of the Industry

21. Weights: wages by industry

25. CAPITAL SERVICES

26. Measurement Problems of K services in Unstable Economies • Cohorts Aggregation: Efficiency Growth Profile • User cost • Utilization Indicators

27. CAPITAL SERVICES IN ARGENTINA 1993=100 140 130 120 110 WEALTH STOCK LASPEYRES INDEX Asset Prices 100 WEALTH STOCK T. INDEX Asset Prices CAPITAL SERVICES T. INDEX User Cost 90 80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Author´s estimation based on National Accounts- INDEC

32. SUMMARY

43. EXTENSIVE GROWTH PROFILE This Results are analogous to Young (1997) y Timmer and Van Ark (1990) for Nic´s experience.

44. CONCLUSIONS • K estimation was done following OECD and SNA: econometric estimation of depreciation, hedonic prices, and rental equivalent taking into account the reliability of Argentine statistics: K/Q & K/L lower & greater dynamism than developed countries. • Adjustment by User Cost: Greater Performance than KW: excluding this effect could overestimate the TFP

45. CONCLUSIONS • Non-measure of Composition and Quality Effects in L & Substitution in Q underestimate Q/L & Strict TFP (2002-2004) • The adjustment by Labour Intensity and K utilisation reduce the pro cyclical behaviour of TFP

46. The importance of competitive gains of the Argentine economy through improvements in apparent cyclical TFP, generated both during the nineties and after 2002 devaluation, are unquestionable. However, doubts arise about the ability of the Argentine economy to generate the necessary productivity gains in the strict sense, independently of composition and quality effects and cyclical variations in factor utilisation, that allow to maintain a sustainable long run growth. • The extensive growth profile diagnosed for the Argentine economy, especially during the nineties, contrasts with assessments of other authors and institutions based on the traditional methodology: without adjusting by relative price effects and factor utilisation. On the contrary, our results are analogous to the evidence found by Young (1995) and Timmer and Van Ark (2000) for Nic´s countries. • This conclusion is based not only in what Young (1995) called the “tyranny of numbers”, by assessing strictly the consistency of the country statistical information, but also a consequence of the “tyranny of the economic cycle, macroeconomic and methodological consistency”.