Publications   Empirical Studies OLDRICH & LUDMILA KYN: TRENDS IN EAST EUROPEAN FACTOR PRODUCTIVITY 

 

The economic interpretation:

(1) It is interesting that all the estimated capital elasticities of output - except for the third step estimates for Bulgaria and Rumania - were in the economically meaningful and theoretically expected range from .1 to .5. In average the estimated bs may seem to be somewhat lower than similar estimates for the Western market economies, however, the difference is not large enough to justify any clear cut conclusions about the “systemic effect” of the Soviet type economic system on the shape of macro-economic production function. The apparently very low estimates of capital elasticity in Bulgaria and Rumania may be a result of poor capital data rather than anything else.

 

(2) The average annual rates of growth of the total factor productivity estimated as a parameter r in the model (1) were very high (around 6 per cent) in the case of Czechoslovakia, Bulgaria and Rumania and some what lower, but still respectable (3 - 5 per cent) in the case of Poland and Hungary. These results which seem to indicate quite successful de­velopment during the 50s and 60s have to be somewhat qualified:

(a)

First, this estimates are not strictly comparable with the similar estimate for Western countries, because we have used the gross value of industrial production rather than GNP for measuring the output. Our r measures the rates of growth of gross factor productivity, which is likely to be larger than the rate of growth of net factor productivity, because the share of intermediate goods in the gross value of output was probably increasing in East European countries in the examined period.

(b)

Second, our estimates relate to the socialized industry, which - at least during fifties - had a preferential treatment before nonsocialized industrial firms and nonindustrial sectors - especially before agriculture and services. This may imply that the factor productivity in socialized industry grew considerably faster than in the whole economy and it is also possible that some part of its growth is simply a result of reallocation of factors and redistribution of income in the years immediately following nationalization.

(c)

Finally, the very high estimates of r may be partly a result of distortions in official East European Statistics. Whether such distortions resulted from deliberate attempts to make the economic growth look better or simply from systemic and methodological reasons is irrelevant here. It is well known that not only the “Western Sovietologists” but also many respectable East European economists and statisticians criticized the official indices of industrial growth as distorted and inflated. The East European methodology of constructing the indices of industrial output and the well known fact of “inflation of constant prices” are two major sources of such distortions. It is important that if distortions appear in output series, they will also appear in capital stock data but not necessarily in labor data. The inflation of official output and capital stock series is therefore likely to produce double effect on our estimated parameters:

(i)

 the labor elasticity of output may be biased upwards and due to the assumption of constant returns to scale the capital elasticity of output would be biased downwards;

(ii)

the inflation of output series would itself cause an upward bias in the estimation of r, but this bias would be even increased by the strong negative covariance between estimated b and r.

All that indicates that we should probably discount something from the 5 - 6 per cent rates of change of the total factor productivity, however, it is difficult to say how much.

 

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(3) The estimates of the model (2) gave very interesting and surprising results (see diagrams 1 to 7). Czechoslovakia, Poland and Bulgaria apparently experienced a quite considerably declining trend in the rate of change of the total factor productivity while such trend could not have been discovered in Hungary and Rumania. This raises several interesting questions: Was the declining trend attributable to the systemic effect of the East European economic systems — as assumed by some economists —or was it only a result of a historical coincidence? One plausible expla­nation is that the above mentioned distorting factors which inflated the estimated rates of growth of the total factor productivity worked during the 60s less powerfully than in the 50s. On the other hand, reports from the East European countries about the deteriorating performance during the 60s were so overwhelming, that it is really difficult to believe that the declining trend could have been caused only by data distortions. But then, why is such a trend not visible in Rumania and Hungary?

 

(4) Finally, the estimates of the models (3) and (4) demonstrated at least for Czechoslovakia considerable and statistically significant fluctuations in the rate of change of the total factor productivity (see diagrams 2 and 4).

 

 

 

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