SR242 Needed: A Theory of Total Factor Productivity

1 Federal Reserve Bank of MinneapolisResearch Department Staff Report 242 December 1997 needed : A Theory of Total Factor Productivity *Edward C. PrescottFederal Reserve Bank of Minneapolisand University of MinnesotaABSTRACTThis paper evaluates the argument that differences in physical and intangible capital canaccount for the large international income differences that characterize the world economytoday. The finding is that they cannot. Savings rate differences are of minor is all-important is Total Factor Productivity . In addition, the paper presents industryevidence that Total Factor productivities differ across countries and time for reasons otherthan differences in the publicly available stock of technical knowledge. These findingslead me to conclude a Theory of TFP is needed . This Theory must account for differencesin TFP that arise for reasons other than growth in the stock of technical knowledge.*The views expressed herein are those of the author and not necessarily those of theFederal Reserve Bank of Minneapolis or the Federal Reserve System.

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