Robert Inklaar, Daan Freeman and Erwin Diewert have won the 2021 Kendrick prize during the 37th IARIW General Conference held in August in Luxembourg. Their paper titled ‘Natural Resources and Missing Inputs in International Productivity Comparisons’ was judged to be the best paper published in the Review of Income and Wealth in 2021.
In rankings of the richest countries around the world, we see resource-rich countries such as Qatar or Saudia Arabia rank very high. Much of this high income is generated from exploiting those natural resources. Yet studies comparing the productivity of countries would typically ignore natural resources, such as oil, gas, iron or gold as an input. The contribution of the paper by Robert Inklaar, Daan Freeman and Erwin Diewert is that it proposes and implements a method to do so. Inklaar is Professor in economics of productivity and welfare at the Faculty of Economics and Business (FEB). Daan Freeman was a PhD candidate at FEB and is now a researcher at the Netherlands Bureau for Economic Policy Analysis (CPB). Erwin Diewert is Emeritus Professor at the Vancouver School of Economics at the University of British Columbia.
In their paper, the authors redefine productivity by including natural resources in the set of inputs to calculate a country’s productivity. Productivity here is defined as the amount of output that a country generates (GDP) relative to the inputs that it uses. The standard set of inputs generally cover labour and capital (buildings, equipment, etc), but not natural resources. A methodological difficulty in expanding the set of inputs is that not every country has every type of natural resource—some extract iron, others oil and gas and in some countries natural resource extraction is minimal.
They resolve this problem by putting a reservation price on natural resources, a notional price relevant for countries that do not extract a particular resource, to make a valid comparison of productivity. The authors make the argument that the world price for the extracted resource (a barrel of oil, a ton of iron ore) is a good reservation price. They then implement their proposed method and show that comparative productivity levels of resource-rich countries are notably lower than when inputs of resources are ignored. The general method that Inklaar, Freeman and Diewert propose can be used beyond natural resources, for example in high-tech manufacturing where production facilities are sometimes located in only a few countries.
The Kendrick prize was originally launched in 1990 as recognition for the best article published that year in the Review of Income and Wealth. The prize was a named after John W. Kendrick, a long-standing member of the International Association for Research in Income and Wealth (IARIW) and a leading scholar on the measurement of economic growth and productivity in the United States, and who provided a generous donation to finance the prize for the first couple of years.
Freeman, D., Inklaar, R.C., & Diewert, W. E. (2020). Natural Resources and Missing Inputs in International Productivity Comparisons. Review of Income and Wealth, 67 (1), 1–17. https://doi.org/10.1111/roiw.12451
Questions? Please contact Robert Inklaar.
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