Additive Growth

Additive Growth

Productivity growth, the key driver of long-run growth in incomes, has slowed significantly in advanced economies over the past few decades. Economists have offered many different explanations for this slowdown – including increased mismeasurement, growing market power, and a reduction in allocative efficiency – albeit with no consensus view.

The NSW Treasury paper Trends in Productivity: What Should We Expect? (Jenner and Wheeler, 2023) presents the ‘additive growth’ model, first proposed by NYU economist Thomas Philippon, which offers a simple alternative explanation for the slowdown – that total factor productivity (TFP) should be expected to slow over time in the absence of new general-purpose technologies (e.g. electricity). This is because economies add to, rather than grow, their stock of useful knowledge over time.

The paper applies the additive growth model to the Australian context and finds that it predicts the recent decline in TFP growth, producing more accurate forecasts than the standard exponential model used by federal and state treasuries.

In this seminar, Angus Wheeler will present the main findings from the paper and discuss the important implications, including that we should expect slower long-term output and tax revenue growth, as well as smaller positive spillovers from R&D activity.

This event is a hybrid event and be attended in-person or virtually.

About the Speaker

Angus Wheeler is an economist in the Economic Strategy and Productivity Group at NSW Treasury. He is the co-author of the NSW Treasury paper Trends in Productivity: What Should We Expect? (2023). He is also the co-author of the Commonwealth Treasury paper Reaching for the Stars: Australian firms and the global productivity frontier (2022).

Details and Registration