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Productivity, Investment,
and Growth – Where we
stand, What we know
Alexander Schiersch & Martin Gornig
07.07.2016
Motivation
Real GDP, 1995-2015
Source: AMECO database
60.00
70.00
80.00
90.00
100.00
110.00
120.00
1995
1996
1997
1998
199...
Motivation
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE3
“Productivity i...
1. Trends in productivity
2. Private sector investments and development of capital stocks
3. Investment restraint in the p...
1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE5
L...
1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE6
T...
1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE7
S...
1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE8
S...
1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE9
S...
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE10
2
Private sector investme...
2 Private sector investments and capital stocks
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference C...
2 Private sector investments and capital stocks
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference C...
2 Private sector investments and capital stocks
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference C...
2 Private sector investments and capital stocks
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference C...
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE15
3
Investment restraint
in...
3 Investment restraint in the public sector
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII...
3 Investment restraint in the public sector
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII...
3 Investment restraint in the public sector
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII...
3 Investment restraint in the public sector
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII...
3 Some suggestions from the German perspective
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CE...
Vielen Dank für Ihre Aufmerksamkeit.
DIW Berlin — Deutsches Institut
für Wirtschaftsforschung e.V.
Mohrenstraße 58, 10117 ...
Literature
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE22
Andrews, D., E...
1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE23
...
A1 Trends in Productivity
Alexander Schiersch & Martin Gornig, DIW Berlin
Franco-German Conference CEPII-CESifo-DIW-OFCE24...
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Franco-German Conference. Paris. July 2016

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Productivity, Investment, and Growth – Where we stand, What we know. Alexander Schiersch & Martin Gornig. Franco-German Conference. Paris. July 2016

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Franco-German Conference. Paris. July 2016

  1. 1. Productivity, Investment, and Growth – Where we stand, What we know Alexander Schiersch & Martin Gornig 07.07.2016
  2. 2. Motivation Real GDP, 1995-2015 Source: AMECO database 60.00 70.00 80.00 90.00 100.00 110.00 120.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2010=100 Germany France Italy Spain UK Japan USA Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE2
  3. 3. Motivation Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE3 “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Paul Krugman
  4. 4. 1. Trends in productivity 2. Private sector investments and development of capital stocks 3. Investment restraint in the public sector Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE4
  5. 5. 1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE5 Labour productivity, annual growth, 1976-2014 Source: SVR, 2015; HP-Filter, 𝜆 = 100 -1 0 1 2 3 4 5 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 percentagepoints Germany France Italy Spain UK Japan USA
  6. 6. 1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE6 TFP growth, 10y averages, 1976-2015 Source: AMECO database -1 -0.5 0 0.5 1 1.5 2 2.5 Germany France Italy Spain United Kingdom Japan United States percentagepoints 76-85 86-95 96-05 06-15
  7. 7. 1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE7 Some reasons for the slowdown of productivity growth: a. Structural change toward services and public sectors (SVR, 2015) b. End of productivity gains from outsourcing/reorganizing value chains; one of the main drivers of productivity between 1995 and 2005 (SVR, 2015) Country 1995 – 2004 2005 – 2014 Share of manufacturing in total value added Total LP growth LP growth manufact uring LP growth service sectors Total LP growth LP growth manufact uring LP growth service sectors 1995 2014 Germany 1.9 3.1 1.3 0.8 1.6 0.6 22.8 22.6 France 1.8 4.4 1.2 0.8 2.4 0.7 16.2 11.2 Italy 0.5 0.9 0.3 0.1 1.0 – 0.3 20.9 15.4 Spain 0.0 1.1 0.0 1.6 2.0 1.0 17.6 13.2 UK 2.2 3.6 2.1 0.4 1.7 0.6 19.0 9.5 USA 2.3 5.9 1.2 0.9 2.3 0.4 15.9 12.0 Source: SVR, 2015, Tab. 26
  8. 8. 1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE8 Some reasons for the slowdown of productivity growth: c. Rising productivity gap between global frontier firms and laggard firms – hampered diffusion of technology (Andrews et al. 2015; OECD 2015) Source: Andrews et al., 2015, Fig.1 Percentage difference in labour productivity levels from their 2001 values (2001=0)
  9. 9. 1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE9 Some reasons for the slowdown of productivity growth: d. Increasing skill mismatch due to rigidities in labour markets (OECD, 2015) e. Hampered reallocation of resources from aging and less productive incumbents toward dynamic thriving new entrants (OECD, 2015) f. Time lag (up to 30 years) between path braking innovations and its widespread use (Brynolfsson & Andrew, 2015) g. Rapid implementation of new technological innovations hampered by insufficient investment
  10. 10. Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE10 2 Private sector investments and capital stocks
  11. 11. 2 Private sector investments and capital stocks Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE11 80 85 90 95 100 105 110 115 120 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007=100 Germany France UK USA Growth of private non-residential gross fixed capital formation (real) Source: OECD Economic Outlook 98 Database, Main Economic Indicator database
  12. 12. 2 Private sector investments and capital stocks Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE12 90 92 94 96 98 100 102 104 106 108 2007 2008 2009 2010 2011 2012 2013 2007=100 Germany France UK USA Growth of (real) net capital stock in manufacturing Source: destatis, BEA, ONS, INSEE; own calculations
  13. 13. 2 Private sector investments and capital stocks Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE13 -25 -20 -15 -10 -05 00 05 10 15 20 25 Electrical equipment (C27) Computer, electronic and optical products (C26) Pharma and Chemical products (C20t21) Machinery and equipment (C28) Motor vehicles & transport equipment (C29t30) percentage points (cumulative, 2007-2013), real net capital stock USA UK France Germany Change in (real) net capital stock of R&D-intensive manufacturing industries, 2007-2013 Source: destatis, BEA, ONS, INSEE; own calculations
  14. 14. 2 Private sector investments and capital stocks Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE14 What can generally be done to stimulate private sector investments (OECD 2015): a. Reduce political uncertainties b. Ease entry and exit c. Strengthen antitrust policy, enhancing competition What can be done (from a German perspective): a. Reform depreciation methods (DIW, 2016a; DIW & HRI, 2014 ) • switch from linear to decreasing balance method of depreciation • overhaul of depreciation periods and depreciation factors (reform of Afa-Tables) b. Increase public sector investments to enhance demand and renew capital stock (DIW, 2016b)
  15. 15. Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE15 3 Investment restraint in the public sector
  16. 16. 3 Investment restraint in the public sector Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE16 Investment ratios by public authorities as percentage of gross domestic product, at current prices Source: German Federal Statistical Office; own calculations 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Overall States Federal level Municipalities
  17. 17. 3 Investment restraint in the public sector Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE17 Federal level Federal States Municipalities Overall 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 -5 0 5 10 15 Source: German Federal Statistical Office; own calculations Net fixed capital formation by level of government In billion euros, current prices
  18. 18. 3 Investment restraint in the public sector Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE18 (343,724] (253.5,343] (186,253.5] [35,186] No data Investment at local levels Euro per capita, 2013 Source: DIW, 2015b, Abb. 2
  19. 19. 3 Investment restraint in the public sector Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE19 0 50 100 150 200 250 300 350 400 Socialexpenditurespercapita 0 100 200 300 400 500 600 700 800 Investment per capita Correlation between social costs and public investments at municipality level Euro per capita, 2013 Source: DIW, 2015b, Abb. 5
  20. 20. 3 Some suggestions from the German perspective Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE20 Some suggestions for strengthening municipalities in the Germany: a. Municipality’s tax revenues: • federal government has few options to directly support specific municipalities (GRW) • support via states; this would require modifying the horizontal fiscal equalization scheme by fully including municipality tax income (Länderfinanzausgleich) (DIW, 2015a) b. Municipality’s expenditures: Reimbursement of (more) social expenditures by the federal level (DIW, 2015c)
  21. 21. Vielen Dank für Ihre Aufmerksamkeit. DIW Berlin — Deutsches Institut für Wirtschaftsforschung e.V. Mohrenstraße 58, 10117 Berlin www.diw.de Redaktion Dr. Alexander Schiersch, aschiersch@diw.de
  22. 22. Literature Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE22 Andrews, D., E. Bartelsman and C. Criscuolo (2015), “Firm Dynamics and Productivity Growth in Europe” Mimeo. Arnold, F., R. Freier, R. Geissler, P. Schrauth (2015b): Große regionale Disparitäten bei den kommunalen Investitionen, DIW Wochenbericht 43. Brynjolfsson E. & A. McAfee (2015): The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, Norton & Company. Dreger, C., H.-E. Reimers (2016b): Welcher Zusammenhang besteht zwischen öffentlich und privaten Investitionen?, DIW Wochenbericht 18. Fratzscher, M., M. Gornig, A. Schiersch (2016a): Weak Corporate Investment Requires Immediate, DIW Economic Bulletin 15. Fratzscher, M., R. Freier, M. Gornig (2015c): Kommunale Investitionsschwäche überwinden, DIW Wochenbericht 43. Gornig, M., C. Michelsen, K. van Deuverden (2015a): Kommunale Infrastruktur fährt auf Verschleiß, DIW Wochenbericht 43. DIW & HRI (2014): Private Investitionen in Deutschland, Studie im Auftrag des Gemeinschaftsausschuss der Deutschen Gewerblichen Wirtschaft. OECD (2015): The Future of Productivity, OECD, Paris. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015): Zukunftsfähigkeit in den Mittelpunkt, Jahresgutachten 2015/16, Statistisches Bundesamt, Wiesbaden.
  23. 23. 1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE23 -4 -3 -2 -1 0 1 2 3 4 Germany France Italy Spain UK Japan USA percentagepoints reduction in working hours increase in value added real labour productivity growth -4 -3 -2 -1 0 1 2 3 4 Germany France Italy Spain UK Japan USA percentagepoints reduction in working hours increase in value added real labour productivity growth Source: SVR, 2015, Abb. 90 Components of labour productivity change 1995-2004 2005-2014
  24. 24. A1 Trends in Productivity Alexander Schiersch & Martin Gornig, DIW Berlin Franco-German Conference CEPII-CESifo-DIW-OFCE24 TFP growth, 5y averages, 1976-2015 Source: AMECO database -1 -0.5 0 0.5 1 1.5 2 2.5 3 Germany France Italy Spain United Kingdom Japan United States percentagepoints 71-75 76-80 81-85 86-90 91-95 96-00 01-05 06-10 11-15

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