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Productivity versus welfare: or, GDP versus Weitzman's NDP

Oulton, Nicholas (2002) Productivity versus welfare: or, GDP versus Weitzman's NDP. Bank of England working papers, 163. Bank of England, London, UK.

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Abstract

How should productivity and welfare be measured when the composition of the capital stock is shifting towards assets with shorter lives? What sort of adjustment, if any, should be made for depreciation? While GDP is still appropriate as a measure of output, in this paper it is argued that NDP (WNDP)—nominal net domestic product deflated by the price index for consumption—is the appropriate measure of welfare. The rate at which the WNDP frontier is shifting out over time is analogous to the rate of growth of aggregate total factor productivity (TFP). Like the latter, it may be decomposed into the contributions made by TFP growth in individual industries, though with a different pattern of weights. The argument is illustrated by the experience of the United States in the 1990s. Here net investment increased more rapidly than gross investment and both grew faster than GDP, while the aggregate depreciation rate rose. Nevertheless the aggregate capital stock grew more slowly than GDP, and depreciation as a proportion of GDP was flat. Both official NDP and WNDP have been growing a little more slowly than GDP. But the acceleration of WNDP post 1995 was as great as that of GDP. Also, the rise in the growth rate of the WNDP frontier was equal to that of aggregate TFP. ​

Item Type: Monograph (Working Paper)
Official URL: http://www.bankofengland.co.uk/publications/Pages/...
Additional Information: © 2002 Bank of England
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 163
Date Deposited: 21 Mar 2013 15:25
URL: http://eprints.lse.ac.uk/49336/

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