Changing Trends in International Manufacturing Productivity

The paper estimates underlying labour-productivity growth for each of the G7 countries over the last two decades. Underlying productivity is proxied by a stochastic trend, which is estimated using the Kalman filter. This technique allows the data to determine when changes in growth have occurred and is therefore less ad hoc than the split trends or dummy variables normally used. The results show that the decline in underlying productivity growth in the 1970s was far from uniform across countries. While relative growth rates in Europe in the 1980s are broadly consistent with the convergence hypothesis, US trends do not appear at present to be significantly below average.