1. 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/IDESacorem@fibertel.com.ar acoremb@yahoo.com.ar The 2008 World Congress on National Accounts and Economic Performance Measures for Nations May 12–17, 2008 Key Bridge Marriott (Arlington, VA—minutes from Washington D.C.)

2. 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. 3 OBJETIVE IDENTIFICATION OF TREND AND GROWTH PROFILEIDENTIFICATION OF TREND AND GROWTH PROFILE SUSTAINABILITY OF GROWTH AND COMPETITIVENESS IN THE LONG RUN: STRICT TFPSUSTAINABILITY OF GROWTH AND COMPETITIVENESS IN THE LONG RUN: STRICT TFP EMERGING UNSTABLE ECONOMIES WITH RELATIVE PRICE VOLATILITY AND INCONCISTENT MACROPOLICIESEMERGING UNSTABLE ECONOMIES WITH RELATIVE PRICE VOLATILITY AND INCONCISTENT MACROPOLICIES ARGENTINA 1990-2004: WHAT ABOUT STRICT TFP?ARGENTINA 1990-2004: WHAT ABOUT STRICT TFP?

4. 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:  K u (60-75) After Brazilian devaluation, inconsistent macro policy could not generate S and TFP in l.r.

5. 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 :  L d (ul: 20-10%) and  K u (55-73)

6. 6 SOURCE OF GROWTH 1.Increase in capital intensity 2.Improvements in productive organization independently of factor endowments (TFP) 3.Changes in the composition of GDP, K, L 4.Quality changes in primary inputs 5.Cyclical Changes in the Utilisation of Productive Factors: Labour intensity L and K Utilization

7. 7 y k EbEb E*E* E ** ybyb y* 0 B A kbkb kaka BASIC SOURCE OF GROWTH: TFP OR k yaya EaEa

8. 8 y k E0E0 E1E1 E 1’ y0y0 y1y1 0 A B k0k0 k1k1 TFP OR K U

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

10. 10 Identification of Basic Source of Growth 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

11. 11 Index Numbers Tornquist Index

12. 12 Composition Effects Quality Effects Utilization Effects

13. 13 EXHAUSTIVE GROWTH ACCOUNTING

14. 14 MAIN RESULTS

15. 15 GDP

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19. 19 LABOR INPUT

20. 20 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 Jobs Adjustment by Part Time jobs And Double Occupation- Employees Self Employees and others Nr. Of Workers Hourly Labor By worker Hours Worked By worker Nr. Hours Worked Labor Differentation Explicit Implicit Hours Worked Differentiated by Worker characteristics Hours Worked By industry MEDICION DEL INSUMO TRABAJO ( OECD)

21. 21 Weights: wages by industry

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25. 25 CAPITAL SERVICES

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

27. 27 CAPITAL SERVICES IN ARGENTINA 1993=100 80 90 100 110 120 130 140 199019911992199319941995199619971998199920002001200220032004 WEALTH STOCK LASPEYRES INDEX Asset Prices WEALTH STOCK T. INDEX Asset Prices CAPITAL SERVICES T. INDEX User Cost Source: Author´s estimation based on National Accounts- INDEC

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32. 32 SUMMARY Effects Excluded Bias on QBias on Inputs Bias on Q/L & TFP QCQC -- L C &L Q (02-04)+- L Intensity+Cyclical Phase-+ -Cyclical Phase+- KuKu +Cyclical Phase-+ -Cyclical Phase+- K C &K Q -+

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41. 41 INTERNATIONAL COMPARISONS Q, Q/L, TFP USAEUARG 70-9595-0470-9595-04 Q2.83.22.2 1.5 (1.9) Q/L1.32.4 1.4-0.2 (0.3) 80-9595-0480-9595-04 TFP0.71.60.70.30.3 a (-0.1 S ) QKLTFP Hong Kong66-917.383.22.3 Singapore66-908.511.55.7-0.3 Corea66-9010.413.76.41.6 Taiwan66-909.612.35.12.4

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43. 43 EXTENSIVE GROWTH PROFILE This Results are analogous to Young (1997) y Timmer and Van Ark (1990) for Nic´s experience. %1990-20041990-20012002-2004 K575650 L302553 Strict TFP 1319-3 Apparent TFP 404347

44. 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 K W : excluding this effect could overestimate the TFP

45. 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. 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”.