Many models of economic growth exclude materials, energy and other intermediate inputs from the production function. Growing environmental pressures and resource prices suggest that this may be increasingly inappropriate.<\/p>\n
This paper explores the relationship between intermediate input intensity, productivity and national accounts, using a panel data set of manufacturing subsectors in the United States over 47 years.<\/p>\n
The first contribution is to identify sectoral production functions that incorporate intermediate inputs, while allowing for heterogeneity in both technology and productivity.<\/p>\n
The second contribution is that the paper finds a negative correlation between intermediate input intensity and total factor productivity (TFP) – sectors that are less intensive in their use of intermediate inputs have higher rates of productivity.<\/p>\n
This finding is replicated at the firm level. We propose tentative hypotheses to explain this association, but testing and further disaggregation of intermediate inputs is left for further work.<\/p>\n
Further work could also explore more directly the relationship between material inputs and economic growth – given the high proportion of materials in intermediate inputs, the results in this paper are suggestve of further work on material efficiency. Depending upon the nature of the mechanism linking a reduction in intermediate input intensity to an increase in TFP, the implications could be significant.<\/p>\n
A third contribution is to suggest that an empirical bias in productivity, as measured in national accounts, may arise due to the exclusion of intermediate inputs.<\/p>\n
Current conventions of measuring productivity in national accounts may overstate the productivity of resource-intensive sectors relative to other sectors.<\/p>\n
Simon Baptist and Cameron Hepburn<\/p>\n\n","protected":false},"excerpt":{"rendered":"\n
Working Paper 95 Abstract Many models of economic growth exclude materials, energy and other intermediate inputs from the production function….<\/p>\n\n","protected":false},"author":43,"featured_media":0,"template":"","tags":[820],"publication-type":[435],"topic_area":[4694],"class_list":["post-4073","publication","type-publication","status-publish","hentry","tag-economic-productivity","publication-type-working-papers","topic_area-policy-evaluation"],"acf":{"downloads":{"ref_value":"field_52f16cc1a80f2","value":["https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-content\/uploads\/2014\/02\/WP95-inputs-and-economic-productivity.pdf"],"type":"download","post_type":""},"profile_link":{"ref_value":"field_52f164b5189e9","value":["cameron-hepburn"],"type":"relationship","post_type":"profile"},"spotlight":{"ref_value":"field_52f80896506d3","value":"","type":false,"post_type":""},"exclude_from_sync":{"ref_value":"field_560538b0e7350","value":"0","type":false,"post_type":""},"rss_newsletter":{"ref_value":"field_54f5c2c1544d8","value":"","type":false,"post_type":""}},"yoast_head":"\n