Sectoral Productivity Growth, COVID-19 Shocks, and Infrastructure

Abstract

This paper examines sectoral productivity shocks of the COVID-19 pandemic, their aggregate impact, and the possible compensatory effects of improving productivity in infrastructure-related sectors. We employ the KLEMS annual dataset for a group of OECD and Latin America and the Caribbean countries, complemented with high-frequency data for 2020. First, we estimate a panel vector autoregression of growth rates in sector level labor productivity to specify the nature and size of sectoral shocks using the historical data. We then run impulse-response simulations of one standard deviation shocks in the sectors that were most affected by COVID 19. We estimate that the pandemic cut economy-wide labor productivity by 4.9 percent in Latin America, and by 3.5 percent for the entire sample. Finally, by modeling the long-run relationship between productivity shocks in the sectors most affected by COVID 19, we find that large productivity improvements in infrastructure--equivalent to at least three times the historical rates of productivity gains--may be needed to fully compensate for the negative productivity losses traceable to COVID 19.

Effective Carbon Rates on Energy Use in Latin America and the Caribbean: Estimates and Directions of Reform

“…Evidence referred to in Metcalf (2019), an excellent and useful review of carbon pricing, has been challenged by Pretis (2022) in a thorough policy assessment of the carbon tax reform in British Columbia, Canada, where the author claims that carbon taxes do show an effect on transport sector emissions, but evidence does not show an effect on aggregate emissions. Evidence of effects of ECRs on emissions reported in Ahumada et al (2022) are consistent with the presence of an aggregate effect that operates through the road transport sector, as ECRs in non-road sectors are rather low, as documented in this paper.…”

“…The fact that the road transport sector is taxed much more heavily than other sectors is mostly explained by the fact that excise taxes had origins quite different from environmental objectives. Taxation of fuels used in transport played a major role in providing fiscal revenues and financing sources of transport infrastructure, as discussed in Ahumada et al (2022). Interestingly, most of the intersectoral heterogeneity regarding carbon pricing does not seem to be mostly a consequence of sector-specific special tax treatments, such as exemptions, rebates, or refunds, as discussed in Appendix II (see Figure A5).…”

Productivity Growth and Infrastructure-Related Sectors: The Case of Mexico

“…We also contribute by relating this with the regional allocation of infrastructure investment efforts. Our starting point and methodology draw from a previous paper that exploits a global panel (Ahumada and Navajas, 2019) and a case study on Argentina (Navajas et al, 2019) and that is based on a global data set based on GGDC and Penn World Tables. However, for the case of Mexico we take advantage of the KLEMS-INEGI growth accounting dataset, which represents a significant potential improvement on the previous dataset.…”

“…6. Results from the estimation of elasticities start at one-digit aggregation of sectors as in Ahumada and Navajas (2019) and Navajas et al (2019). Given these results, we move to estimate elasticities at the most disaggregated level that KLEMS-INEGI data allow.…”

“…From this starting point there were two main efforts directed at implementing this approach. The first (Ahumada and Navajas, 2019) developed an empirical methodology for the study of infrastructurerelated sectors' productivity shocks on sectoral productivity. The proposed methodology takes a departure from the vast literature on infrastructure and growth by enlarging the dimensionality (sectors) of the problem and positing a different channel to study the effects from infrastructure.…”