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GLOBAL PRODUCTIVITY
CHAPTER 4
TABLE 4E.5 Determinants of transition into Club 1, 1990-2000 Dependent variable: EMDE membership of highest-productivity convergence Club 1 Years of education Economic Complexity Index Initial productivity
(1)
(2)
(3)
(4)
(5)
0.07**
0.06**
0.05*
0.05*
0.05**
0.29**
0.29***
0.27***
0.26***
0.25***
-0.18***
-0.18***
-0.19***
-0.16***
-0.17***
1.87**
1.76*
Trade openness
0.10
WGI: Government effectiveness
0.12
Investment in percent of GDP FDI in percent of GDP Observations Pseudo-R
2
*
0.06
0.05*
0.06**
0.05*
54
54
54
54
54
0.32
0.33
0.41
0.42
0.46
p<0.1; **p<0.05; ***p<0.01
Sources: Barro and Lee (2015): Hidalgo and Hausmann (2009): World Bank, Worldwide Governance Indicators. Note: Marginal effects of a one-unit increase in each variable on the probability of an EMDE joining convergence Club 1 relative to other EMDEs. Derived from a logit model, with standard errors calculated using the delta method. Average years of schooling for males and females from Barro and Lee (2015). Economic Complexity Index of Hidalgo and Hausmann (2009). Exports and imports as a percent of GDP. Government effectiveness survey from the World Bank’s WGI, defined as perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. Estimate gives the country’s score on the aggregate indicator, in units of a standard normal distribution, that is, ranging from approximately -2.5 to 2.5. A higher index value indicates greater political stability. Gross fixed capital formation and FDI are measured in percent of GDP. Each covariate reflects averages during 1990-2000. EMDEs = emerging market and developing economies; FDI = foreign direct investment; WGI = Worldwide Governance Indicators.
ANNEX 4F Productivity measurement: PPP vs. market exchange rates EMDEs produce 34 percent of the average advanced economy output per worker when measured at PPP but produce just 16 percent of advanced economy output when measured in U.S. dollars converted at market exchange rates. In theory, the PPP adjustment of output corrects for lower average prices of nontradable goods in EMDEs and serves as a more accurate measurement of output. However, additional issues are associated with PPP adjustment. Productivity growth measured using the Penn World Table’s PPP-adjusted output series has considerably exceeded growth in national accounts-based measures of productivity and may in part reflect methodological differences and flaws in historical crosscountry price comparison surveys. Faster growth rates in PPP-adjusted output series may be biasing estimated convergence rates to be higher and also result in implausible club convergence allocations.
Aggregation In the analysis of productivity growth and differentials in this chapter, cross-country comparisons are made using productivity measured in U.S. dollars at 2010 prices and exchange rates. Often, studies of convergence have used cross-country comparisons of income per capita calculated at PPP. This annex addresses the following questions: •
How do measures of productivity at market exchange rates and PPP differ conceptually?
