A special webinar organised by The Productivity Institute in collaboration with the Bennett Institute for Public Policy and the National Institute of Economic and Social Research.
New York University Professor Thomas Philippon will discuss his new working paper on additive growth. The paper discusses how the additive growth model – rather than the exponential model -provides more useful medium-forecasts of total factor productivity.
Growth theory is based on the assumption of exponential total factor productivity (TFP) growth. Across countries and time periods I find that TFP growth is actually linear. The additive growth model, unlike the exponential one, provides useful long-term forecasts for TFP. For the distant past the model suggests piecewise linear evolutions where the size of TFP increments changes in the late 1600’s, the early 1800’s, and around 1930. For the distant future the model predicts ever increasing increments in standards of living but with falling real interest rates and growth rates that converge to zero. The model suggests stable TFP growth in the US, but a TFP slowdown in the Euro area since the late 1990s