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Mr. Lamin Y Leigh

among the TFP determinants, and limited data availability. As a result, we use several econometric techniques in an attempt to account for the endogeneity and heterogeneity problems as well as to provide robustness to our estimates. Our analysis suggests that structural reforms are needed to foster TFP growth and to accelerate convergence to higher income levels. In particular, boosting productivity growth would require reforms in the financial sector; reducing regulatory barriers to firms; improving the quality of public spending, most notably on secondary and

Mr. Roberto Cardarelli and Ms. Lusine Lusinyan
Total factor productivity (TFP) growth began slowing in the United States in the mid-2000s, before the Great Recession. To many, the main culprit is the fading positive impact of the information technology (IT) revolution that took place in the 1990s. But our estimates of TFP growth across the U.S. states reveal that the slowdown in TFP was quite widespread and not particularly stronger in IT-producing states or in those with a relatively more intensive usage of IT. An alternative explanation offered in this paper is that the slowdown in U.S. TFP growth reflects a loss of efficiency or market dynamism over the last two decades. Indeed, there are large differences in production efficiency across U.S. states, with the states having better educational attainment and greater investment in R&D being closer to the production “frontier.”
International Monetary Fund. Western Hemisphere Dept.

factors of production than to a diminishing pace of technological progress. We find that higher educational attainment, greater spending on research and developments (R&D), and a larger financial sector are associated with lower “inefficiencies” across U.S. states. Our analysis of TFP determinants across U.S. states over the last two decades suggests that human capital is a significant factor associated with TFP growth. B. Empirical Analysis 46. Our empirical analysis is carried out in three stages . First, we estimate state-level TFP growth using a standard

Aidar Abdychev, La-Bhus Fah Jirasavetakul, Mr. Andrew W Jonelis, Mr. Lamin Y Leigh, Ashwin Moheeput, Friska Parulian, Ara Stepanyan, and Albert Touna Mama
Many small middle-income countries (SMICs) in sub-Saharan Africa (SSA) have experienced a moderation in growth in recent years. Although factor accumulation, most notably capital deepening, was crucial to the success of many SMICs historically, this growth model appears to have run its course. The analysis in this paper suggests that the decline in the contribution of total factor productivity (TFP) to growth is largely responsible for the slowdown in trend growth in many SMICs, which highlights the need for policy actions to reinvigorate productivity growth. This paper explores the question of what kind of structural policies could boost productivity growth in SMICs and the political economy factors that may be contributing to the slow implementation of these critical reforms in these countries. The findings suggest that although macroeconomic stability and trade openness are necessary for productivity growth, they are not sufficient. SMICs need to improve the quality of their public spending, most notably in education to minimize the skill mismatch in the labor market, reduce the regulatory burden on firms, improve access to finance by small and medium-sized enterprises and create the enabling environment to facilitate structural transformation in these economies.
International Monetary Fund. African Dept.
This Selected Issues paper analyzes policies that can raise potential growth in small middle-income countries (SMICs) of sub-Saharan Africa (SSA). The findings suggest that although macroeconomic stability and trade openness are necessary for productivity growth, they are not sufficient. SMICs in SSA need to improve the quality of their public spending, most notably on education, to solve the problem of skill mismatch in the labor market, reduce the regulatory burden on firms, improve access to financing by small and medium-size enterprises, and pave the way for structural transformation in these economies. Given the short-term cost of these reforms, the timing and sequencing of reforms and the role of quick wins is important for their implementation. In some cases, a social bargain can be a mechanism to generate consensus around a package of mutually reinforcing reforms.
International Monetary Fund. African Dept.

(2004) ; Acemoglu and Johnson (2003) ; Easterly (2006) ). The table below presents a summary of the key influential factors from the literature and the variables, which will be used in the qualitative and quantitative analyses of this chapter. Summary of TFP Determinants and Variables Used in SMICs Analysis TFP determinants from the literature Variables 1. Macroeconomic conditions Inflation, government debt, public employment 2. Openness, and technology creation and transfer Trade, FDI, R&D, infrastructure 3

Aidar Abdychev, La-Bhus Fah Jirasavetakul, Mr. Andrew W Jonelis, Mr. Lamin Y Leigh, Ashwin Moheeput, Friska Parulian, Ara Stepanyan, and Albert Touna Mama

looks not only at the level of education but at its quality and the gap between skill supply and demand by introducing the index of skill-mismatch as an indicator explaining TFP growth and (ii) looks at the impact of macro-stability friendly forms of financial inclusion on productivity growth. 4 The main estimation challenges involve endogeneity, cross-country heterogeneity among the TFP determinants, and data availability limitation. As a result, we adopt several econometric techniques in an attempt to account for the endogeneity and heterogeneity problems, as well

Mr. Roberto Cardarelli and Ms. Lusine Lusinyan

educational attainment, greater spending on research and developments (R&D), and a larger financial sector are associated with lower “inefficiencies” across U.S. states. Our analysis of TFP determinants across U.S. states over the last two decades suggests that human capital is a significant factor associated with TFP growth. II. Empirical Analysis Our empirical analysis is carried out in three stages. First, we estimate state-level TFP growth using a standard Cobb-Douglas production function with time-varying and state-specific labor shares. Second, we use a

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper on the United States of America examines the recent US labor force penetration rate (LFPR) dynamics. LFPR dynamics can be driven by structural factors and cyclical ones related to job prospects. With participation rates for older workers lower than for prime age workers, demographic models suggest that aging of the baby boom generation explains about 50 percent of the near 3p.p. LFPR decline during 2007–2013. State-level panel regression analysis is used to tie down the cyclical effect, which is estimated to account for about 30–40 percent of the decline. Significant remaining slack in the labor market points to an important role for macroeconomic and labor supply policies. This suggests a still important role for stimulative macroeconomic policies to help reach full employment. Macroeconomic policy should remain accommodative for a while given sizeable labor market slack. This slack goes beyond that signaled by the unemployment rate and takes account of the LFPR being below trend and many employees working part time ‘involuntarily’.