Demography, Education, and the Future of Total Factor Productivity Growth

Sanderson, W.C. & Striessnig, E. ORCID: https://orcid.org/0000-0001-5419-9498 (2009). Demography, Education, and the Future of Total Factor Productivity Growth. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-09-002

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Abstract

In this paper we present new data on total factor productivity for eight world regions over the period 1970 to 2001. The regions are North America, Western Europe, Japan/Oceania, the China Region, South Asia, Other Pacific Asia, Latin America and the Caribbean, and Sub-Saharan Africa. We propose and estimate a new model of the determinants of total factor productivity based on the framework of conditional convergence. The model allows us to distinguish between factors that influence the level of the conditional productivity frontier and the speed of catching up to that frontier. We show that productivity stagnation in Latin America and the Caribbean and in Sub-Saharan Africa are not because they are trapped far below their potential, but rather that they are fully utilizing the low potential that they have. We found that education and age structure have independent and joint effects on productivity. The rate of capital formation, the quality of institutions, openness, and corruption also affect total factor productivity. The effects of specific variables on total productivity differ by context. They can be different depending on whether a country is catching up to its conditional productivity frontier or not. This provides the possibility of resolving some of the puzzles with respect to the effects of age structure and education that appear in the literature. The paper is based on the new IIASA/VID database on education.

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