Introduction

World and country economic growth is a future agenda for national accounts, and the effi- continuing and major interest to many econo- ciency costs and welfare gains from potential tax mists, politicians, policy-makers, media partici- reform. pants, and individuals, as it can impact on the All but one of the next 11 chapters use well-being of countries and individuals. How- KLEMS (capital, labor, energy, materials, and ever, measuring economic growth is a continuing services) data, frequently with a KLEMS pro- challenge, particularly with difficult-to-measure duction model in the analysis.1 Within these factors, such as intangibles, digital and informa- chapters, depending upon the available data tion technology product advances, and produc- and the nature of the analysis, some of the tivity, which can impact on growth. In addition, EMS inputs may not be included and others emerging countries such as China and India are may be added. Chapters cover all Group of 7 taking a greater role in the world economy. (G7) countries (Canada, France, Germany, Italy, This book serves as a foundational resource Japan, the United Kingdom, and the United for graduate students and researchers world- States), all Emerging 7 (E7) countries (Brazil, wide working on growth and productivity and China, India, Indonesia, Mexico, Russia, and related applications. In addition, policy-makers Turkey), all EU-12 countries (Austria, Belgium, can use it as a basis to understand how empirical Czech Republic, Denmark, Finland, France, Ger- results are produced and to familiarize them- many, Italy, the Netherlands, Spain, Sweden, selves with empirical analysis and results of and the United Kingdom) plus Australia, Chile, experts in this important field. Columbia, Norway, South Korea, and Taiwan, The chapters in this book demonstrate the sig- for a total of 28 countries. In 2017, these coun- nificant influence of Dale W. Jorgenson on the tries account for three-quarters of gross domes- research of many economists. Accordingly, this tic product (GDP) in the world.2 The leading book is dedicated to him with thanks and apitr- chapter in the KLEMS section of this book is a ciation for his direct and indirect (through comparison of G7 and E7 countries’ economic others) contribution to economic research. growth and productivity, where the E7 have The book starts with foundations, three chap- been projected to account for a greater share of ters including a discussion of how economic GDP than G7 countries in the near future. Chap- growth is achieved, the evolution of and the ter 5 looks at the possible reasons for the

1 KLEMS-type production models were popularized by Dale W. Jorgenson. Professor Jorgenson has organized five biennial World KLEMS conferences that have encouraged the construction of and research using KLEMS databases. 2 As measured in constant 2011 international dollars, purchasing power parity.

xv xvi INTRODUCTION slowdown in economic growth in the EU-12 chapters provide an extensive examination of countries compared to the United States. India many factors related to economic growth and may soon be the largest country in the world productivity. as measured by population. Chapter 6 describes The last set of chapters in the book extend how reforms initiated since the 1990s, aided by analysis beyond the core economic and growth increasing participation in global value chains considerations, from prices and inflation, (GVCs), have strengthened the Indian GVCs, carbon taxes and policy, welfare, to manufacturing sector. Chapter 7 concludes by human capital. Looking at Organisation for Eco- suggesting that the governments of China, nomic Co-operation and Development (OECD) Japan, South Korea, Taiwan, and the United countries, Chapter 15 concludes that mismea- States should encourage investment in R&Din surement of digital product prices entering ICT (information and communications technol- into a consumption deflator results in an overes- ogy). Chapter 8 takes an industry perspective timate of growth rates of impacted products. to explain China’s productivity slowdown. Chapter 16 investigates the direct and indirect Chapter 9 uses average labor productivity and impact of knowledge capital and innovation multifactor productivity over the subperiods on economic growth and productivity in 10 Eu- 1997 to 2006 and 2006 to 2014 to look at the dif- ropean countries and the United States. For the ferences in growth patterns in mainland Nor- United States, Chapter 17 outlines the of con- way. In Chapter 10 the progress toward and struction quality-adjusted price indexes for a the nature of KLEMS database construction for digital product: smartphones. The intercon- Australia and Russia, both resource-rich coun- nected world, specifically through GVCs, is tries, is described and contrasted. Chapter 11 de- recognized in Chapter 18. It uses a growth ac- scribes a joint U.S. Bureau of Economic counting framework to analyze sources of Analysis/U.S. Bureau of Labor Statistics project growth and productivity in vertically integrated to create an internally consistent KLEMS proto- production that crosses borders. The next two type data set from 1947 to 2016 using disparate chapters both use a multisector general equilib- data sources. The prototype estimates reveal rium model to examine carbon taxes or carbon that relatively slow input growth in capital price policies, but for different countries. Chap- and labor services has curtailed US economic ter 19 focuses on the United States; Chapter 20 growth for the past decade and a half. Chapter focuses on China. In Chapter 19 it is demon- 12 provides benchmark estimates of industry- strated how different accounting methods: top- level price differentials between Japan and the down versus bottom-up, can have a large effect United States based on a bilateral price account- on the simulated impact of carbon prices. In ing model anchored to the Japan-US input- Chapter 20, a two-stage translog utility function output tables. Chapter 13 provides empirical that explicitly accounts for detailed energy ex- evidence on the impact of the skill-biased tech- penditures allows for a simulation to determine nical change associated with the introduction if a carbon tax can achieve a country’sParis of ICT investment on labor demand in Japan Climate Change targets. GDP is often thought and Korea. Chapter 14 measures the knowledge to be a measure of economic welfare. For several intensity of industries in six American countries US regions, in Chapter 21, the appropriateness and five European countries, concluding that of GDP as a proxy for economic welfare is exam- growth in labor and capital knowledge intensity ined. In the concluding chapter of the book, hu- assets is important in industries that are not man capital by gender from 1975 to 2012 is knowledge intensive. Altogether, these 11 examined in an expanded accounting system, INTRODUCTION xvii which includes both market and human capital, book. These three chapters were reviewed by to look at the trends affecting economic growth Charles Yuji Horioka, Cecilia Jona-Lasinio, or and productivity in the United States. Nicholas Oulton. I thank all of the above and As the managing editor of this book, I was the many authors for their efforts to produce assisted by four associate editors: Carol A. this book, which is dedicated to Dale W. Jor- Corrado,MunS.Ho,HakK.Pyo,andBart genson. van Ark. The five editors reviewed the intro- duction and all but three chapters of the Barbara M. Fraumeni