Capital Stocks and Productivity in Industrial Nations

Abstract

This article presents estimates of the contribution of physical capital to explaining labour productivity differences between Britain and four of her major competitors, the United States, Germany, France and Japan. The paper uses a standardised method to estimate capital stocks in the five countries. It presents arguments why this may be preferable to comparing official capital stock figures since the latter are sensitive to differences in measurement techniques used by the statistical offices. In the aggregate economy differences in physical capital are important in explaining labour productivity levels in Britain relative to the United States, Germany and France but cannot explain Britain's labour productivity advantage over Japan. In manufacturing Britain's lower capital per unit of labour also helps explain her lower labour productivity levels relative to all four countries but the contribution of capital is generally lower in manufacturing than for the aggregate economy. For both the aggregate economy and manufacturing differences in capital growth rates help explain Britain's productivity growth performance in the past three decades relative to the United States and Japan but have little explanatory power relative to Germany and France.