World Economics

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The NTV Model for Total Factor Productivity
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Andrew Smithers, World Economics, June 2019
The consensus model for total factor productivity is unsatisfactory; the alternative, non-technology variables (‘NTV’) model resolves the objections to it and should therefore be preferred by economists. The key objections to the consensus model are that it is untestable, its assumption about corporate behaviour is falsified when tested and, for the accounting framework to function, the labour/capital ratio has to be as flexible on old capital as it is on new: an assumption which seems most unlikely. The differences in the results are non-trivial and the NTV model has positive implications for economic policy by showing how they could be changed to boost growth. NTV comprises all the variables, other than changes in labour and technology, that determine the level of investment and the capital stock. Changes in NTV are the net impact on the incentive to invest resulting from changes in the individual constituents, which are profit margins, the cost of equity, the cost of debt, leverage, corporation tax and the hurdle rate, which is the minimum expected return on equity needed to make new investment worthwhile in the opinion of management. The consensus model assumes that investment is partly determined by changes in the cost of capital while ignoring the impact of changes in the cost of equity and debt and in leverage. I show that this assumption is unjustified and why it is preferable to use NTV.
Re-thinking Economic Progress
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Giles Atkinson, World Economics, March 2000
Most national governments have pledged a commitment to sustainable development. The transformation of these pledges into policy is a formidable challenge. Of particular interest are proposals for the construction of green alternatives to Gross Domestic Product (GDP), which it is hoped will provide policy-makers with a consistent and summary signal of "true" trends in the economy both now and into the future. This paper reviews the green accounting debate over the past decade. the author argues that, while initial expectations have, at times, been overstated, there are encouraging signs for policy-makers attempting to make sense of their commitments to sustainable development. One such indication is the increasing emphasis on improved measures of saving, providing a better link between actions in the present and their implications for the future.

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