Procyclical Multifactor Productivity: Tests of the Current Theories.

This paper conducts various tests of four hypotheses to account for procycical multifactor productivity. The hypotheses include imperfect competition, increasing returns to scale, labor hoarding, and thick market externalities. The test results provide strong evidence for imperfect competition and increasing returns, and weak evidence for labor hoarding and thick market externalities. However, the markup and returns to scale parameter estimates are much smaller than those noted in previous research. This difference results from the use here of gross output and intermediate inputs as opposed to the use in previous research of value added and primary inputs.