Capital, Innovation, and Growth Accounting

Posted: 25 Jun 2008

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Peter Howitt

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

In this paper we show how moving from the neoclassical model to the more recent endogenous growth paradigm can lead to markedly different interpretations of the same growth accounting data. In neoclassical theory, even if between 30 and 70 per cent of the growth of output per worker in OECD countries can be accounted for by capital accumulation, yet in the long run all of the growth in output per worker is caused by technological progress. Next, we develop a hybrid model in which capital accumulation takes place as in the neoclassical model, but productivity growth arises endogenously, as in the Schumpeterian model. The hybrid model is consistent with the empirical evidence on growth accounting, as is the neoclassical model. But the causal explanation that it provides for economic growth is quite different from that of the neoclassical model.

Keywords: capital, innovation, growth

JEL Classification: O0

Suggested Citation

Aghion, Philippe and Howitt, Peter, Capital, Innovation, and Growth Accounting. Oxford Review of Economic Policy, Vol. 23, No. 1, pp. 79-93, 2007. Available at SSRN: https://ssrn.com/abstract=1151119 or http://dx.doi.org/10.1093/oxrep/grm007

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Howitt

Brown University - Department of Economics ( email )

Box B
Providence, RI 02912
United States
401-863-2145 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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