Growth and Business Cycles for the Swedish Economy

This paper consists of two parts. In the first part we carry out a traditional growth accounting exercise for the private business sectors of the Swedish economy. We search for structural breaks during the sample period, using Chow tests, using a dynamic specification of Total Factor Productivity (TFP) growth rates. Grangercausality tests are carried out for the nine sub-sectors of the private business sectors of the Swedish economy. We combine the growth rates of value added and hours worked and calculate labour productivity for the period 1960-1999. In order to facilitate comparisons we compare the results of this study with Swedish and international studies. To a large extent we are able to replicate the Swedish results. The slow down in TFP growth rates in the 1970s can be identified with the first and the second oil shocks in 1973 and 1979. The other structural breaks occurred in the early 1990s and could possibly be identified with the Tax Reform of the Century in 1991 and the severest of recession in the Swedish economy. The Granger-causality test indicate that growth rates in investment Granger cause growth rates in TFP for Agriculture and financial institutions, real estate and other business, while TFP growth rates in mining and quarrying, and manufacturing Granger cause growth rates in investment. The second part of the paper I Hodrick-Prescott filter the data, and calculate cross correlation’s of detrended output, hours, investment and TFP at different leads and lags. The results indicate that investment leads TFP for agriculture, hunting, forestry and fishing, electricity gas and water, and for education, health and social work and community social and personal services. Investment lags TFP for the mining and quarrying, manufacturing industry, and for financial institutions and insurance companies, real estate renting and business service companies. Hours worked lead the TFP cycle for mining and quarrying, manufacturing and wholesale/retail trade. The decomposition of TFP into trend and cyclical component historical dates the business cycle. Standard deviations of the cyclical components of value added, hours worked, TFP, and gross investment reveals that the most volatile variables are gross investment, followed by TFP, GDP and hours worked. The contribution of this part of the paper lies in the disaggregated data set containing annual information for the period 1963-1999, and in the application of several analytical tools to the growth accounting exercise results. In addition such an extensive growth accounting exercise has not been carried out for the private business sectors of the Swedish economy. The data set used in this study can be used for replication purposes.