Lawrence R. Klein Lecture 1997: Needed: A Theory of Total Factor Productivity

This paper evaluates the argument that differences in physical and intangible capital can account for the large international income differences that characterize the world economy today. The finding is that they cannot. Savings rate differences are of minor importance. What is all-important is total factor productivity (TFP). In addition, the paper presents industry evidence that TFPs differ across countries and time for reasons other than differences in the publicly available stock of technical knowledge. These findings lead the author to conclude a theory of TFP is needed. This theory must account for differences in TFP that arise for reasons other than growth in the stock of technical knowledge. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.