Appendix A. Tables
Appendix B. Figures
Appendix C. Proofs of Propositions
Appendix D. Calibration
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International Monetary Fund: We would like to thank comments from Charles Kramer, Ben Tomlin, David Laibson, N. Gregory Mankiw, Andrei Shleifer, an anonymous referee and seminar participants at the IMF, Canada’s finance department and central bank, Harvard University, and the 2011 Winter Meetings of the Econometric Society, Denver, CO. All remaining errors are ours.
The endogenous growth theory—e.g., as discussed by Aghion and Howitt (1992)—explicitly models the behavior of TFP, but it is more focused on long-run phenomena related to economic growth.
By hypothesis, we assume that such average is well defined. This will always be the case in a market economy provided preferences and endowments have the usual properties.
The appendix contains details of the calibration.
Another reason why firms do not achieve production efficiency is related to fact that they maximize profits in a context of monopolistic competition. This, however, bears no relation to financial shocks or dependence on external funds.
For instance, an increase in the cost of funds may affect the ability of firms to invest in new technologies that would increase productivity. If this is the case, we might observe a negative relationship between the cost of funds and productivity as industries become more reliant on external financing.
The authors explicitly average TFP growth for each industry over several years in order to eliminate fluctuations associated with the business cycle.
International Standard Industrial Classification System.
The North American Industry Classification System (NAICS) is utilized to measure activity at the industry-level in the United States, Canada, and Mexico. It has largely replaced the older Standard Classification Industrial (SIC) system. The NAICS is similar to the ISIC which was established by the United Nations. The first version of NAICS and the one used in the paper is from 1997.
See the list of sectors in the appendix. There is no information regarding the capital stock for the transportation industry (NAICS code 336) in Canada, so we eliminate it from the sample.
Chained 2000 dollars.
For robustness purposes, we have also used yields on corporate bonds of different maturities, as well as other relevant interest rates. Results are virtually unchanged.
Note that we allow the coefficients on these explanatory variables to vary across the various industries.
Out of the 31 estimated coefficients on returns to scale, 24 are not significantly different from zero at the 5 percent confidence level. Basu (1996) also rejects the idea that increasing returns to scale could account for the procyclicality of productivity in the United States.
With the exception of the transportation industry (NAICS code 336) which is present only for the U.S. data.
Results available upon request.
NAICS code 324.
That is, to the extent that the industry component is not idiosyncratic too. As examples of industries in our sample, we have “Food, Beverage, and Tobacco” or “Chemical Products”. At this level of aggregation, it is hard to claim the sectoral component would be completely idiosyncratic.
See Kenneth French’s homepage for details about the construction of each time series of returns.
Details of this matching procedure are available upon request.
A Wald test cannot reject the null hypothesis that the sum of the coefficients in the quadratic model is zero.