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Productivity Growth in the Nordic Countries

An Appraisal of Analysis, Data and Methodological Information

image of Productivity Growth in the Nordic Countries

Even small increases in a country's growth rate can result in large changes in living standards over just one generation. This key insight, which often seems to be forgotten by policymakers, is an important reason why the field of economic growth continues to be a large research field. This report provides an overview of the development of labor productivity in the Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden) since the early 1980s. It also examines if data are consistent with predictions of traditional theories of growth. The analysis shows, for example, that the real wage per employee is positively related to the level of labor productivity - a finding suggesting that changes in relative standards of living have been driven by parallel changes in relative productivity.

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Growth Accounting

Consider a general production function on Y = F(K, L,V ) for a single firm, where Y is value-added output (i.e., gross output net of intermediate inputs). Capital and labor inputs are denoted by K and L. V is an index of the level of technology. Let the production function F be homogenous of degree γ in capital and labor, and of degree one in V. Logarithmic differentiating of F yields

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