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http://ssrn.com/abstract=122470
 
 

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Paasche vs. Laspeyres: the Elasticity of Substitution and Bias in Measures of TFP Growth


Alwyn Young


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

July 1998

NBER Working Paper No. w6663

Abstract:     
In recent papers, Nelson and Pack (1995) , Rodrik (1997), and Hsieh (1997a) argue that standard measures of total factor productivity growth in countries where the capital-labour ratio has risen rapidly, e.g. the East Asian NICS, will understate true productivity growth if the elasticity of substitution is less than one and there is labour augmenting technical change. This note shows that this argument increases a Paasche measure of productivity, at the expense of lowering a Laspeyres estimate. The conditions under which total factor productivity growth is consistently underestimated are clarified.

Number of Pages in PDF File: 11

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Date posted: October 18, 1998  

Suggested Citation

Young, Alwyn, Paasche vs. Laspeyres: the Elasticity of Substitution and Bias in Measures of TFP Growth (July 1998). NBER Working Paper No. w6663. Available at SSRN: http://ssrn.com/abstract=122470

Contact Information

Alwyn Young (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1329 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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