Endogenous long-term productivity performance in advanced countries: a novel two-dimensional fuzzy-Monte Carlo approach

Abstract

Better performance at a country level will provide benefits to the whole population. This issue has been studied from various perspectives using empirical methods. However, little effort has as yet been made to address the issue of endogeneity in the interrelationships between productive performance and its determinants. We address this issue by proposing a Two-Dimensional Fuzzy-Monte Carlo Analysis (2DFMC) approach. The joint use of stochastic and fuzzy approaches – within the ambit of 2DFMCA – offers methodological tools to mitigate epistemic uncertainty while increasing research validity and reproducibility: (i) preliminary performance assessment by fuzzy ideal solutions; and (ii) robust stochastic regression of the performance scores into the epistemic sources of uncertainty related to the levels of physical and human capitals measured in distinct countries at different epochs. By applying the proposed method to a sample of 23 countries for 1890–2018, our results show that the best and worst-performing countries were Norway and Portugal, respectively. We further found that the intensity of human capital and the age of equipment (capital stock) have different impacts on productive performance – it has been established that capital intensity and total factor productivity are influenced by productivity performance, which, in turn, has a negative impact on labor productivity and GDP per capita. Our analysis provides insights to enable government policies to coordinate productive performance and other macroeconomic indicators.