Productivity, Investment, and Current Accounts:

Reassessing the Evidence

Jaime Marquez

Federal Reserve Board

jaime.marquez@frb.gov

September 2001 - Preliminary

In this paper I reassess the widely accepted evidence of Glick and Rogoff suggesting that productivity shocks explain movements in private investments and current accounts. Their conclusion rests, indeed, on productivity data from the manufacturing sector through 1990 and the question is whether it is robust to developments since then. One development of interest is the substantial expansion of the information technology (IT) sector which, by globalizing the production of manufactures, could erode the importance of the distinction between country-specific and global productivity shocks, a distinction central to their conclusion. Another relevant development is the revisions to the methods and definitions of the national income accounts of several countries.  I find that data revisions as such do not alter their conclusion but that post-1990 developments steal the force of their conclusion. Moreover, I implement alternative formulations! and find, again, a lack of empiri cal support for their finding. Thus I study whether globalization of production in the manufacturing sector, by eroding the distinction between local and global productivity shocks, could explain the lack of empirical support. To this end, I use productivity data from the business sector which includes activities where the distinction between local and global shocks remains important. Once one allows for this possibility, their conclusion regains its original strength.