Shutao Cao, Bank of Canada

Shutao Cao from the Bank of Canada will present a seminar at 10:30 am in the Timlin Room (Arts 807). This is part of the Department of Economics Seminar Series.

Title: Growth accounting in a small open economy: sector-specific technological change and relative prices of trade.

Abstract:

Starting around 2000, both aggregate total factor productivity and output per hour observed a slowdown in Canada and other countries, roughly coinciding with the commodity price boom and the improvement in the terms of trade. To account for this productivity slowdown and examine the contribution of relative prices, a multiple-sector growth model with relative prices, input-output linkages, and trade is developed for a small open economy. On the constant growth path, relative prices of sector-level output change, reflecting relative changes in sector-level technology. Three main results emerge from the model. First, the effective aggregate total factor productivity in the small open economy consists of two components: the sum of sector-specific technology weighted by the Domar aggregation weights; and domestic-export relative prices as a measure of export cost. Second, the terms of trade have no direct first-order impact on productivity and output growth. Rather, changes in export prices (relative to domestic prices) affect the aggregate total factor productivity, while changes in import prices affect capital deepening (i.e. increase in capital-labor ratio). Finally, technological change in the machinery and equipment sector is faster than other sectors and its impact is amplified through input-output linkages, making it a dominant factor for aggregate productivity growth. Nevertheless, calibrated model suggests that the slowdown of aggregate total factor productivity in the 2000s is accounted for by the declined productivity in sectors producing non-investment goods, despite the rapid growth of machinery-specific technology over this period.