World KLEMS: Productivity andEconomic Growth in the World
Economy: An Introduction
Dale W. Jorgenson
Harvard University1
This issue of the International Productivity

2008 and assures a higher degree of interna-

Monitor contains papers presented at the Fourth

tional comparability. The Madrid World

World KLEMS Conference, held at the BBVAKLEMS Conference included reports from

Foundation, Madrid, Spain, on May 23-24,

three regional organizations. The first of these,2016. 2 This is the latest in a series of interna-

European Union (EU) KLEMS, arose from ational conferences devoted to research on pro-research project supported by the European

ductivity and growth in the world economy.

Commission. This project was initiated in 2003

World KLEMS is based on outputs and inputs ofand completed in 2008. The Economic Com-

capital (K), labour (L), energy (E), materials

mission for Latin America and the Caribbean(M), and services (S) for individual industries.

(ECLAC) in Santiago, Chile, an agency of the

Productivity of each industry is the ratio of out-

United Nations, established the Latin American

put to all inputs.

regional organization LA KLEMS in 2009. The

The point of departure for research on eco-third regional organization, Asia KLEMS, wasnomic growth and productivity is the volumeorganized by the Asian Development Bank

edited by Dale W. Jorgenson, Kyoji Fukao, andInstitute (ADBI) in Tokyo, Japan, in 2010.

Marcel P. Timmer (2016), The World Economy:

The EU KLEMS project was led by the

Growth or Stagnation? This volume presents

Groningen Growth and Development Centerstudies for more than forty countries by teams(GGDC) at the University of Groningen, in the

involving thirty-eight authors. The methodol-

Netherlands, and involved 18 participating

ogy follows Chapters 19 and 20 of the System oforganizations. The project applied international

National Accounts 2008 (SNA 2008) produced

standards for data on growth and productivity toby the United Nations Statistical Division (UN,

25 of the (then) 27 members of the European2009). Jorgenson and Schreyer (2013) show how

Union. The project generated similar data forto incorporate accounts for industry-level

Australia, Canada, Japan, and the United States.

growth and productivity into the SNA 2008.

M a r c e l Ti m m e r, R o b e r t I n k l a a r, M a r yMore than a dozen countries have added

O'Mahony, and Bart van Ark (2010) reported

industry-level data on growth and productivity

the results in their monograph Growth of theto their national accounts. This follows SNA

1

The author is Samuel W. Morris University Professor at Harvard University and founder of the World KLEM initiative. Email: djorgens@fas.harvard.edu.

2

The conference program is available on the World KLEMS website: http://www.worldklems.net/conferences.htm.

INTERNATIONAL PRODUCTIVITY MONITOR

1European Economy: A Comparative Industry Per-accounts that individual countries report tospective.3

Eurostat, the European statistical agency.

The main conclusion of the EU KLEMSThe initial update of the EU KLEMS data-

project is that Europe's unsatisfactory economic

base for ten European countries by van Ark andperformance preceded the downturn in the

Kirsten Jäger, “Recent Trends in Europe's Out-

European economy following the Great Reces-put and Productivity Growth Performance atsion in the United States. This was due to under-

the Sector Level, 2002-2015” is found in thisinvestment in human capital, information tech-

volume. Results are available for manufacturing

nology, and research and development. The vol-and market services, as well as the total econ-ume Industrial Productivity in Europe: Growth andomy. The emerging picture of the European

Crisis, edited by Matilde Mas and Robert Ste-economy reveals little evidence of a recovery

hrer (2012), presented international compari-from the Great Recession. The database will besons of growth and productivity within Europe

updated and extended to cover the EU 28, theand between Europe and advanced economies inUnited States, and Japan.

Asia and North America.

Substantial differences in economic perfor-

Updated estimates of the industry-levelmance characterize the major European econo-

sources of European economic growth for themies. In “The Role of Capital Accumulation inperiod 1999-2014 were presented by van Ark

the Evolution of Total Factor Productivity inand O'Mahony (2016) in Chapter 4 of The World

Spain,” Francisco Pérez and Eva Benages show

Economy. The Great Recession that began in thethat relatively satisfactory economic growth in

United States during 2007-2009 was transmit-

Spain is due to substantial investments in human

ted to Europe in 2008 and 2009. This resulted inand non-human capital with negative contribu-

a "double dip" recession in Europe and widened

tions of growth in total factor productivity. Italy

the gap in growth rates between Europe and thehas had little economic growth in per capita

United States. Slower growth in Europe can beterms since the adoption of the Euro in 2000.

attributed to demand-side factors, such as "sec-Germany's more satisfactory performance canular stagnation", and supply-side slowdowns in

be traced to a successful program of economic

the growth of employment and productivity.

reforms.

In 2016, the European Commission launched

The Latin American regional organization,a project to update the EU KLEMS database.

LA KLEMS, was originally coordinated by

The original EU KLEMS study included data

ECLAC and included research organizations

on outputs, inputs, and productivity for 72

and statistical agencies in the leading Latin

industrial sectors. The update is based on value

American countries. Mario Cimoli, André Hof-added for 34 industrial sectors with inputs ofman, and Nanno Mulder (2010) summarized thecapital and labour services. This employs Euro-

results of the initial phase of the project. Andréstat's (2013) European System of Accounts 2010

Hofman, Matilde Mas, Claudio Aravena, and(ESA 2010), which is closely related to SNA

Juan Fernández de Guevara (2016) presented

2008. The estimates are based on the Interna-industry-level production accounts for Argen-tional System of Industrial Classification (ISIC),

tina, Brazil, Chile, Columbia, and Mexico for

Revision 4, and are consistent with the national

1990-2010 in Chapter 5 of The World Economy.
A striking finding is that there has been no total

3

2

See Timmer et al. (2011) for an accessible overview of the monograph.

NUMBER 32, FALL 2017

factor productivity growth in the leading econo-

revisions. This was based on data sources lessmies of Latin America during the past two

subject to political manipulation, including

decades.

those for Argentina KLEMS.

A detailed report on Mexico KLEMS was

Asia KLEMS is the third regional organiza-

published by the Mexican statistical agency,tion devoted to research on productivity and

INEGI (2013). Mexico KLEMS includes a com-economic growth at the industry level. Thisplete industry-level database for 1990-2011,

includes the Japan Industrial Productivity data-

integrated with the Mexican national accounts

base, used in analyzing the sources of Japan's

and updated annually. Since 1990 periods oflost decades since 1991 by Kyoji Fukao, Kenta

positive economic growth have been offset by

Ikeuchi, Hyeogug Kwon, Younggae Kim, Tatsuji

the negative impacts of the Mexican sovereign

Makino, and Miho Takizawa (2016) in Chapter 3

debt crisis of 1995, the U.S. dot-com crash inof The World Economy. This database is sup-2000, and the U.S. financial and economic crisis

ported by the Research Institute for Economy,of 2007-2009. Mexican total factor productivity

Trade and Industry (RIETI), an agency of theat the eco nom y-wide level ha s r em ained

Japanese government. RIETI also supports theunchanged throughout two decades.

China Industrial Productivity database reportedAndré Hofman, Claudio Aravena, and Jorge

by Harry X. Wu (2016) in Chapter 6 of The

Friedman analyze industry-level data on growth

World Economy. The Korea Industrial Productiv-

and productivity for Argentina, Brazil, Chile,

ity database, supported by the Korea Productiv-

Columbia, and Mexico in "Sources of Produc-

ity Center, was reported by Hak K. Pyo,tivity and Economic Growth in Latin America

Hyunbae Chun, and Kyunhee Rhee (2016).

and the Caribbean, 1990-2013" in this volume.

The construction of the India KLEMS data-

In addition, they report aggregate data onbase is supported by the Reserve Bank of India.

growth and productivity for 18 Latin American

Deb Kusum Das, Abdul A. Erumban, Sureshcountries. In 2016, the LA KLEMS project was

Aggarwal, and Sreerupa Sengupta (2016)transferred from ECLAC to the Inter-Americanpresent the results in Chapter 7 of The World

Development Bank (IDB) in Washington, D.C.

Economy. There is an extensive literature on

Ariel Coremberg summarizes a remarkable

China-India comparisons of economic growth.

application of Argentina KLEMS in his contri-

The first study to use industry-level data on

butions to this volume, “Argentina Was Not thegrowth and productivity for this purpose is

Productivity and Economic Growth Champion

found in this volume by Harry Wu, K. L.

of Latin America.” In 2007, the Argentine gov-

Krishna, Deb Kusum Das, and Pilu Chandra

ernment embarked on a program to manipulateDas, "How Does the Productivity and Eco-the official statistics to exaggerate Argentina's

nomic Growth Performance of China and Indiaec o no m i c p er f o r m a nc e. T h is p ol ic y w as

Compare in the Post-Reform Era, 1981-2011?."reversed by the current government. The

Both China and India grew much more rap-

Argentine statistical agency, INDEC, has recon-

idly than the world economy, especially after

structed the Argentine national accounts

India's economic reforms of the 1990s andaccording to internationally accepted principles.

China's accession to the World Trade Organiza-

Earlier, the Argentina KLEMS research grouption in 2001. China's aggregate output grewat the University of Buenos Aires developed an

more than 50 per cent faster than India's.

unofficial system of national accounts for

China's total factor productivity growth was

Argentina, largely anticipating the necessary

adversely affected by the collapse of world trade

INTERNATIONAL PRODUCTIVITY MONITOR

3

during the Great Recession and India's produc-

Fraumeni (1989). This incorporates the costs oftivity growth was 25 per cent faster. Manufac-

human capital investment, as well as the impact

turing accounted for 50.9 per cent of China'sof this investment on labour incomes over thegrowth, but only 22.5 per cent of India's, while

lifetime of each individual. Christian's primary

services contributed 56.2 per cent of India's

conclusion is that human capital per capita in thegrowth, but only 29.0 per cent of China's. While

United States has remained relatively constantIndia's total factor productivity performance forwith increased educational attainment offset by

the two sectors reflected the positive contribu-

aging of the population. He compares the resultstion of the sectors to economic growth, China

with a cost-based approach to human capital

experienced negative productivity growth inmeasurement and confirms previous findings

services.

that the lifetime income approach yields esti-

In the contribution, “Can Intangible Invest-

mates of investment in human capital that arements Ease Declining Rates of Return on Capi-several times larger. He concludes that the char-tal in Japan?,” Tsutomu Miyagawa, Miho

acterization of investment in human capital by

Takizawa, and Konomi Tonogi analyze the stag-

the cost-based approach is incomplete and cannation of the Japanese economy after the col-be misleading.

lapse of the "bubble economy" in 1991. Growth

Investment in information technology is aaccounting based on the Japan Industrial Pro-

second important focus of research on growthductivity database reveals a sharp decline in theand productivity. In Chapter 9 of The World

rate of capital formation and an associatedEconomy, Carol Corrado, Jonathan Haskel, anddecline in the rate of return to capital. Detailed

Cecilia Jona-Lasinio analyze the impact ofmodeling shows that the rate of return is posi-

investment in information technology and othertively associated with intangible forms of invest-

intangible assets on productivity growth at thement, especially research and development,

industry level in Europe. In article, "ICT Prices

human capital, and information technology.

and ICT Services: What Do They Tell Us about

The authors conclude that economic policy in

Productivity and Technology" in this volume,

Japan should stimulate investment in intangibles

David Byrne and Carol Corrado summarize ato revitalize capital formation and economic

new line of research on the prices of information

growth.

technology. These include prices for hardware

Investment in human capital is an importantand software, as well as prices for services likefocus of research on economic growth and pro-

cloud computing and computer systems design.

ductivity. In Chapter 12 of The World Economy

Byrne and Corrado show that the composition

Gang Liu and Barbara Fraumeni provide anof ICT outputs in the United States has shiftedinternational survey of research on human capi-

from hardware and software towards services.

tal investment. Michael S. Christian's article,

They also show that official prices indexes for"Net Investment and Stocks of Human Capital

ICT products have failed to track recent changes

in the United States, 1975-2013," in this vol-in technology. They present new estimates ofume, provides an annual time series for the value

ICT prices and new estimates of the contribu-

of human capital and investment in human capi-

tions of ICT investments and ICT services total in the United States, eliminating an impor-economic growth. They conclude that the con-tant gap in the literature.

tribution of information technology to eco-

Christian employs the lif etime incom e
approach to human capital of Jorgenson and4

nomic growth is much larger than suggested by
the official estimates.

NUMBER 32, FALL 2017

International trade is a third important focus

Taking deliveries to final demand as outputs andof research on growth and productivity. In

the contributions of factors of production by all

Chapter 15 of The World Economy, Marcel Tim-

countries and industries as inputs, productivity

mer, Bart Los, and Gaaitzen J. de Vries summa-of the value chain is output per unit of all inputs.

rize research on global value chains (GVCs).

Timmer illustrates the new approach to produc-

They decompose international production pro-tivity measurement by the international produc-

cesses for deliveries to final demand — con-tion of German automobiles. The contribution

sumption, investment, government, and exportsof capital input accounts for about half of output— into the stages in which value is added by

growth, labour input for another 30 per cent andindustry and country. The value chain is usefully

total factor productivity 20 per cent. He also

identified by the final stage of production, forshows that three-quarters of the productivity

example, German automobiles. The value added

growth in the German automobile industry

at each stage of production is decomposed by the

takes place in Germany.

factors of production, capital and labour inputs.

I conclude that the World KLEMS Initiative

These factors can be further disaggregated, as inestablished by Jorgenson, Timmer, and van Ark

the KLEMS-type data sets described in theat the First World KLEMS Conference, held atother chapters of The World Economy.

Harvard University in 2010, is flourishing. 4 The

Timmer, Los, and de Vries present a new con-three regional organizations in the European

ceptual framework, the World Input-Output

Union, Latin America, and Asia are generating

Database (WIOD), linking KLEMS-type data

important new research on productivity andsets for more than forty countries by means of

economic growth for the leading economies ofbilateral trade flows. Using Wassily Leontief's

the world. The contributions of capital and(1977) World Input-Output Model, the income

labour inputs have emerged as the predominant

generated by each of hundreds of global value

sources of economic growth in both advanced

chains can be broken down by industry, country,

and emerging economies. Economic growthand capital and labour inputs. International

depends primarily on investments in human andtrade is analyzed in terms of exchanges of value

non-human capital, including investments inadded among countries. Among the trends thatboth tangible and intangible assets. Theseemerge from this new perspective is greater

investments take place through markets and thefragmentation of international production withcentral role of government policy is to assure

a diminishing role for domestic sources of valuethat the markets function properly and are rela-added. There is a greater role for emerging

tively free of distortions. This has proved to beeconomies as sources of value added and aan enormous challenge during the Great Reces-diminishing role for advanced economies. Moresion and the incomplete recovery.

value is added by capital and less by labour.

Productivity continues to play an important

In Timmer's contribution in this volume,role as a source of economic growth, but this"Productivity Measurement in Global Valuerole has diminished sharply in the aftermath ofChains," the WIOD database is applied to thethe Great Recession. Total factor productivity

measurement of productivity. Changes in thegrowth disappeared for long periods of time, forincome generated in each global value chain are

example, during the last two decades in the lead-separated into price and quantity components.

ing economies of Latin America and in the lost4

For an overview of the initiative see Jorgenson (2012).

INTERNATIONAL PRODUCTIVITY MONITOR

5

decades in Japan after the collapse of the bubble
economy. Governments play a key role in providing incentives for productivity improvements. An example is the creation of property
rights for the accumulation of intellectual capital through patent systems. A much more important role for governments is the maintenance oforderly markets for different types of investments. This must be adapted quickly to new circumstances like the emergence of new sources offinancial instability.
The success of the World KLEMS Initiative
has inspired governments to provide new information on growth and productivity. This has led
to important innovations, like the creation of
KLEMS-type databases as part of the national
accounts. However, the framework for new data
development is now expanding to encompass theworld economy, as in the World Input-Output
Database. This will open many opportunities forresearch like those already underway in humancapital, information technology, and global
value chains. It will also create an expanded rolefor international organizations like the United
Nations and the OECD in providing the institutional framework for new research on growthand productivity in the world economy.

References
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