Potential Growth of the U.S. Economy: Will the Productivity Resurgence Continue?

Available Evidence Suggests Persistance Of Healthy Productivity Change And Economic Growth

By Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh

Dale W. Jorgenson is the Samuel W. Morris University Professor at Harvard University. He has served as the head of many prestigious organizations, including president of the American Economic Association, and has received numerous awards and honorary doctorates. He earned a BA in economics from Reed College in Portland, Oregon, and a PhD in economics from Harvard University.

Mun S. Ho is a visiting scholar at Resources for the Future, Washington DC, and a fellow at the Kennedy School of Government, Harvard University. He also works with the Harvard University Center for the Environment. He received his Ph.D. in economics from Harvard University.

stiroh Kevin J. Stiroh is an Assistant Vice President and head of the Banking Studies Function at the Federal Reserve Bank of New York. His research includes work on productivity and the sources of economic growth; the economic impact of information technology; and the efficiency, risk, and performance of financial institutions. He received a B.A. in economics and psychology from Swarthmore College in 1989 and a Ph.D. in economics from Harvard University in 1995.

This paper analyzes the sources of U.S. productivity growth through 2004 and presents medium-term projections for the U.S. economy. We attribute a substantial portion of productivity gains over the past decade to production and use of information technology equipment and software. In the most recent years, we also identify a growing contribution from sources outside the technology- producing sectors. Our base-case projection for the GDP growth rate is almost exactly three percent. We emphasize the substantial range of uncertainty by presenting an optimistic projection of 3.5 percent and a pessimistic projection of only 1.9 percent.

This paper was the basis for the Adam Smith Award Address by Jorgenson to the National Association for Business Economics, Chicago, IL, September 26, 2005. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.

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