Productivity Growth in the Automobile Industry, 1970-1980: A Comparisonof Canada, Japan and the United States

In this paper we calculate and analyze the automobile industries cost and productivity experience during the 1970 's in Canada, the U.S.and Japan. Utilizing an econometric cost function methodology, we are able to isolate the major source of short-run disequilibrium in this industry-variations' in capacity utilization-and analyze its effects on cost and total factor productivity (TFP) gross. This is achieved through a novel application of the Viner-Wng envelope theorem, which allows us to track short-run behavior utilizing what is essentially a long-run cost function.To striking empirical results energe. First, TFP grew much faster in the Japanese automobile industry (4.3% annum) than in the Canadian (1.4%) and U. S.(1.6%) industries. Second, the importance in analyzing variations in capacity utilization is confinned by the fact that failure to correct for this source of productivity change would have led to a 31% under estimate of long-run TFP growth in Canada arid a 37% underestimate for the United States.