He referred to
total factor productivity as a "measure of our ignorance about the causes of economic growth".
Catch-up growth Abramovitz's catch-up growth hypothesis attempted to explain
Western Europe's Golden Era of
economic growth from 1948 to 1972. He essentially concluded that the key to the growth was Western Europe's ability to import and implement technology from the United States. The growth rate of a developing country will be higher than the growth rate of a developed country because the
diminishing return of developing countries is much lower. If a country is trying to be industrialized, it can only be better off; it will grow much faster than countries that are already industrialized. In the process, the country creates more jobs and more capital, which means the economy's total revenue will increase more and more quickly.
Limitation to catch-up growth Abramovitz's theory does not guarantee that poor countries will catch up to developed countries, because the poor countries might fail to adapt to new technology, attract capital and participate in the global market. If a country cannot adapt to the technology it is offered, it will not be able to generate more capital, which will cause the catch-up process to fail. If the country does not build relationships with developed nations, the process will also fail. Building such relationships is so important because it is developed countries that will purchase most of developing countries' capital. If the developing country sells more capital, it will grow. If it grows, it will catch up.
The role of inventories in business cycles During his time at the National Bureau of Economics Research, Abramovitz researched the role
inventories play in business cycles. A business cycle is a fluctuation in economic activity over a period of time. The fluctuation may be good, as with a boom and economic expansion, or bad, as with a
recession or
depression. In his paper "The Role of Inventories in Business Cycles," Abramovitz wrote that inventory can play a negative role if there is a lag in the production of the inventory. A lag can occur for the following reasons: • Many goods need to be produced to create one whole product. For example, to manufacture a car, several kinds of goods are required. If there is a lag in obtaining any of those goods, it slows down the production of the car. This prevents the market from meeting
demand, which leads to less revenue. • Raw materials purchased from domestic manufacturers or dealers may lag by a few months. For example, to make fabric, many types of raw material—such as
cotton,
nylon,
wool, and
polyester—are required. If domestic manufacturers or dealers are unable to produce the raw material on time, the market will suffer because it cannot meet demand. • Raw materials purchased from distant sources or on long-term contracts may also arrive late. When domestic manufacturers and dealers cannot produce enough, a nation has to reach out to other nations, which takes much longer. This can also cause the market to lack products consumers want. • Finished goods made to order are closely tied to output. Even if raw materials are received on time and goods are produced on time, the inventory may not be enough to meet demand. Producing more requires starting from scratch. Meanwhile, the market does not have any goods to sell. Aggregate inventories of wholesalers and retailers also appear to have lagged behind sales by about six months. Detailed studies reveal that this lag reflects large differences in the ability of merchants in different trades to keep the rate at which they receive goods in line with the rate at which they can dispose of them. Some merchants' ability to adjust inventories to sales is so limited as to produce a long lag of stocks behind sales, or even an inverse relationship between sales and inventories. If these various lags are worked out, a country can stop the negative effect of inventories on the national market. == Publications ==