The World KLEMS Initiative was established at the First World KLEMS Conference, held at Harvard University in August 2010[i]. The purpose of the Initiative is to generate industry-level datasets, consisting of outputs and inputs of capital (K) and labor (L), together with inputs of energy (E), materials (M), and services (S). Productivity for each industry is defined as output per unit of all inputs. These datasets provide a new framework for analyzing the sources of economic growth at the industry and aggregate levels for countries around the world. This framework has closed a critical gap in systems of national accounts.
Growth of output, inputs, and productivity at the industry level is important for understanding changes in the structure of an economy and the contributions of different industries to economic growth. International comparisons of differences in productivity levels based on purchasing power parities of outputs and inputs at the industry level provide a second focus for industry-level productivity research. These comparisons are essential in assessing changes in comparative advantage and formulating strategies for economic growth.
The EU (European Union) KLEMS study provides industry-level datasets on the sources of growth for 25 of the 27 EU member countries[ii]. These datasets are essential for analyzing the slowdown in European economic growth that preceded the current financial and fiscal crisis. The datasets and results were presented at the Final EU KLEMS Conference in Groningen, The Netherlands, in June 2008[iii]. Marcel P. Timmer, Robert Inklaar, Mary O’Mahony, and Bart van Ark (2010) describe the datasets and analyze the sources of economic growth in Europe at the industry level.
The EU KLEMS project also included datasets for Australia, Canada, Japan, Korea, and the United States. Matilde Mas and Robert Stehrer (2012) present international comparisons within Europe and between Europe and the advanced economies in Asia and North America. As European policy-makers focus on removing barriers to the revival of economic growth, international differences in the sources of growth have become central in understanding the impacts of changes in economic policy.
The EU KLEMS project identified the failure to develop a knowledge economy as the most important source of the slowdown in European economic growth. Development of a knowledge economy will require investments in human capital, information technology, and intellectual property. An important policy implication is that extension of the single market to the services industries, which are particularly intensive in the use of information technology, will be essential for the removal of barriers to the knowledge economy.
The Second World KLEMS Conference was held at Harvard University on August 2012[iv]. The conference included reports on recent progress in the development of industry-level datasets, as well as extensions and applications.[v] Regional organizations in Asia and Latin America have now joined the European Union in supporting research on industry-level datasets. Due to the growing recognition of the importance of these datasets, an effort is underway to extend the new framework to emerging and transition economies, such as Brazil, China, India, and Russia.
LA-KLEMS, the Latin American Chapter of the World-KLEMS Initiative, was established in December 2009 at a conference at ECLAC, the Economic Commission for Latin America and the Caribbean, in Santiago, Chile[vi]. This Chapter is coordinated by ECLAC and includes seven research organizations in four leading Latin American countries – Argentina, Brazil, Chile, and Mexico.[vii] Mario Cimoli, Andre Hofman, and Nanno Mulder (2010) have summarized the results of the initial phase of the LA-KLEMS project.
A detailed report on Mexico KLEMS was published in 2013 by INEGI, the National Institute of Statistics and Geography.[viii] This was presented at an international seminar at the Instituto Techologico Autonoma de Mexico (ITAM) in Mexico City on October 2013[ix]. Mexico KLEMS includes a complete industry-level productivity database for 1990-2011 that is integrated with the Mexican national accounts. This database will be updated annually. A very important finding is that productivity has not grown in Mexico since 1990. Periods of positive economic growth have been offset by the negative impacts of the Mexican sovereign debt crisis of 1995, the U.S. dot-com crash in 2000, and the U.S. financial and economic crisis of 2007-2009.
Asia KLEMS, the Asian Chapter of the World KLEMS Initiative, was founded in December 2010 and the first Asia KLEMS Conference was held at the Asian Development Bank Institute in Tokyo in July 2011[x]. Asia KLEMS includes the Japan Industrial Productivity database[xi], the Korean Industrial Productivity database[xii], and the China Industrial Productivity database[xiii]. Industry-level databases have been constructed for Taiwan and work is underway to develop a similar database for Malaysia. These databases were discussed at the Second Asia KLEMS Conference, held at the Bank of Korea in Seoul in August 2013[xiv].
Kyoji Fukao (2012, 2013) has employed the JIP data base in analyzing the slowdown in productivity growth in Japan after 1991, now extending into the Two Lost Decades. The initial downturn in productivity growth followed the collapse of the “bubble” in Japanese real estate prices in 1991. A brief revival of productivity growth after 2000 ended with the sharp decline in Japanese exports in 2008-2009. This followed the rapid appreciation of the Japanese yen, relative to the U.S. dollar, after the adoption of a monetary policy of quantitative easing by the Federal Reserve, the U.S. central bank. When the Bank of Japan failed to respond, Japan experienced a much more severe downturn in productivity growth and a larger decline in output than the U.S. in the aftermath of the financial and economic crisis of 2007-2009.
The Third World KLEMS Conference was held in Tokyo in May 2014[xv]. This conference, discussed industry-level datasets for more than 40 countries, including those that participate in the three regional organizations that make up the World KLEMS Initiative – EU KLEMS in Europe, LA KLEMS in Latin America, and Asia KLEMS in Asia. In addition, the conference considered research on linking datasets for the 40 countries through the World Input-Output Database (WIOD)[xvi]. Another important theme of the conference was the extension of the measurement of capital inputs to include intangibles, such as human capital and intellectual property, as well as the familiar tangible assets – plant, equipment, and inventories.
Linked data sets are especially valuable in analyzing the development of global value chains in Asia, North America, and Europe. For this purpose international trade can be decomposed by tasks performed at each link of the value chain. Trade in tasks can be compared with trade in commodities, which involves “double-counting” of intermediate goods as products pass through the value chain. A central finding is that regional value chains are now merging into global value chains involving all the major countries in the world. The World Input-Output Database is now undergoing a substantial expansion at the OECD with support from the World Trade Organization[xvii].
The Third World KLEMS Conference included reports on new industry-level data sets for India and Russia. Russia KLEMS was released in July 2013 by the Laboratory for Research in Inflation and Growth at the Higher School of Economics in Moscow[xviii]. Russia’s recovery from the sharp economic downturn that followed the dissolution of the Soviet Union and the transition to a market economy has been very impressive. Surprisingly, increases in productivity growth widely anticipated by observers inside and outside Russia have characterized only the service industries, which were underdeveloped under central planning. Mining industries have attracted large investments, but these have not been accompanied by gains in efficiency. The recent collapse in world oil prices poses an important challenge for the future growth of the Russian economy.
The India KLEMS database was released in July 2014 by the Reserve Bank of India[xix], shortly after the Third World KLEMS Conference in Tokyo. This database covers 26 industries for the period 1980-2011. Beginning in the 1980’s, liberalization of the Indian economy has resulted in a gradual and sustained acceleration in economic growth and a transfer of resources from agriculture and manufacturing to the service industries. The most surprising feature of the acceleration in Indian economic growth has been the stagnant share of manufacturing and the rapid growth in the share of services. Given the shrinking share of agriculture and the size of the Indian agricultural labor force, another surprise is that growth of capital input has been the most important source of growth in manufacturing and services, as well as more recently in agriculture.
[vii] Additional information about LA-KLEMS is available on the project website:
[ix] For the program and participants see: http://www.inegi.org.mx/eventos/2013/contabilidad_mexico/presentacion.aspx
[x] For the program and participants see: http://asiaklems.net/conferences/conferences.asp Asia KLEMS was preceded by International Comparison of Productivity among Asian Countries (ICPAC). The results were reported by Jorgenson, Kuroda, and Motohashi (2007).
[xi] http://www.rieti.go.jp/en/database/JIP2014/index.html Data are available for 108 industries covering the period