Comparison of the development of GDP quality in the Czech Republic and Germany

The research of development production factors has been one of the fundamental economic issues since the beginning of economics as a science. At the national economy level, it's about finding the causes of long-term growth of gross domestic product (GDP). When we analyze the changes in GDP in time, we ask whether this change is caused by extensive factors (i.e. by changing the range of inputs), or intensive factors (i.e. technological progress in the broad sense). If the product development involves both types, it is useful to quantify their share. The standard way of solving this task is by growth accounting. It is assumed that the basic factors of production labor L and capital K are added. Our methodology is based on special forms of production as a function of the neoclassical model of economic growth by Solow: Y = κ. f (K, L). The quantity κ is called total factor productivity (TFP) and captures the aggregate effect of intensive factors. However, growth accounting has limited applicability and does not solve the issue of the proportion of the impact of extensive factors and the share of influence intensive factors have on the GDP development. The applied solution is general for all product development and factors.

We first introduce our proposed methodology in relation to growth accounting. The results of this methodology are the dynamic parameters of intensity and extensity, which measure the effect of changes in TFP and the total input factor (TIF) on the change in GDP (Y) for all possible cases of GDP development.  Second, we present the dynamic parameters of the share of influence that the development of labour L and capital K have on the development of the TIF. Next, we analyze the development of the economy (using GDP) of the Czech Republic and Germany, both calculated first in the presented method and second through growth accounting. We further show how the intensive and extensive parameters changed if the economy influenced some major events.  

The aim of this article is to study this alternative methodology and illustrate its application to the analysis of the dynamic quality of development GDP in the Czech Republic and Germany for a 25 year period (1990-2015).