U.S. Total Factor Productivity Slowdown : Evidence from the U.S. States

Total factor productivity (TFP) growth began slowing in the United States in the mid-2000s,before the Great Recession. To many, the main culprit is the fading positive impact of theinformation technology (IT) revolution that took place in the 1990s. But our estimates of TFPgrowth across the U.S. states reveal that the slowdown in TFP was quite widespread and notparticularly stronger in IT-producing states or in those with a relatively more intensive usageof IT. An alternative explanation offered in this paper is that the slowdown in U.S. TFPgrowth reflects a loss of efficiency or market dynamism over the last two decades. Indeed,there are large differences in production efficiency across U.S. states, with the states havingbetter educational attainment and greater investment in R&D being closer to the production"frontier."