This paper investigates the impact of globalization on productivity growth and the procyclicality
of productivity growth in manufacturing industries in the United States and Germany. For U.S. industries,
the analysis suggests that changes in international demand affect productivity growth differently from
changes in exposure to international competition. An increase in foreign demand for U.S. exports raises
trend productivity growth, but to a lesser degree than does a similar demand shock from domestic buyers.
On the other hand, whereas an increase in U.S. imports reduces trend productivity growth of U.S. industries, a
loss of market share to imports is associated with gains to productivity growth. For Germany, neither
international demand shocks nor exposure to international competition seem to be associated with
productivity growth rates, perhaps because German industries experienced a smaller increase in exposure
to international competition over the time period. Comparing the U.S. and German results suggests that
"going global" may affect productivity growth rates more than simply "being global." As for the
procyclical characteristics of productivity growth, the U.S. and German measures evidence different
procyclical behavior. For many industries, both U.S. and German labor productivity growth rates exhibit
some degree of procyclicality. For German industries, this procyclicality of productivity growth disappears
with broader measures of productivity growth that include utilization of capital and intermediate inputs.
For U.S. industries, the degree of procyclicality increases when productivity growth is measured on these
broader bases. Moreover, in the United States, procyclicality appears to be accentuated by export demand
growth and dampened by import demand growth.
Full paper (262 KB PDF)
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