Multifactor Productivity - Social Capital

[tferleman]

I’m doing research on Multifactor Productivity. So, I began with looking at the historical patterns for the entire World. In the attached .ppt you will see that MFPSC declines rather significantly from 1960 to 2000. I wanted to know why MFPSC declined so much so I looked into the drivers for MFPSC.

The drivers are:
GDPPCP
ECONFREE
EDYRSA25
FREEDOM
GOVCORRUPT
GOVEFFECT

So, using the full set variable parameter selection I created graphs of each of the variables starting with the first driver and selecting World from the Regional options. However, in each case the variables increased. It appears that something doesn’t fit. Why does MFPSC decline while all of it’s variables rise. Is this correct? How is it possible that MFPSC declines but over the same period it's drivers rise?

[admin]

In recent weeks/months we have reworked the code around the MFP calculation and the attached figure shows the difference in MFP component behavior. We will be posting a new version to the web in about mid December in time for winter and spring class use and the changes will be in that version.

Note that there is a downward spike in MFPPC (perhaps overdone) because of the upward spike in oil prices making some production capital obsolete. There is an upward trend in MFPKN because of cumulative knowledge gain. Otherwise the long-term behavior of the components is quite flat globally. But individual countries could have a declining MFPSC in the face of upward movements in most or even all drivers because the calculation of MFPSC compares values of those drivers with expected values at any given level of GDP per capita. That is, we expect democracy and economic freedom to rise with GDP per capita so when they rise at the levels of the functions (see the development profile under specialized displays), they contribute no new MFP. But if they rise more slowly (or drop), they could be a drag and if they rise more quickly they contribute to productivity gains.

BBH