In this paper, we apply the aggregate production function to approximate the path of potential output. We use a time-varying NAIRU to derive the amount of potential labour and a newly developed measure of capital services to account for the productive impact of capital. In addition, trend total factor productivity is estimated. Production functions for the key sectors (Agriculture, Industry, etc.) are also calculated, exploring the growth accounting approach and decomposition of total factor productivity growth. During 1995-2005, the growth in potential output was constrained by a gradual increase in the NAIRU, a temporary drop in investment activity and, most importantly, by only a modest rise in total factor productivity. In this period, the Czech economy also suffered from a structural burden, i.e. all growth in total factor productivity was exclusively due to better utilisation of resources, given their initial allocation, with an even negative contribution of resource reallocation. Just from 2001 onwards, we observe substantial improvements in supply-side performance, except for the functioning of the labour market.
Keywords: Capital services, factor allocation and utilisation, growth accounting, NAIRU, potential output, production function, structural changes, total factor productivity.
Issued: October 2006
Published as:
- Hájková, D. and J. Hurník (2007): „Cobb-Douglas Production Function: The Case of a Converging Economy", Czech Journal of Economics and Finance, 57(9-10), pp. 465-476.
- Hájková, D. and J. Hurník (2007): Supply-side Performance in the Czech Republic: A Macroeconomic View (1995-2005), Prague Economic Papers, 16(4), pp. 319-335.
- Dybczak, K. and V. Flek (2007): Supply-side Adjustments in the Czech Republic: A Cross-Sector Perspective, Eastern European Economics, 45(6), pp. 29-45.
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