Getting Growth Accounting Right

68 Pages Posted: 23 Oct 2015

See all articles by Hernando Zuleta

Hernando Zuleta

Universidad de los Andes, Colombia

Bradley Sturgill

Grand Valley State University

Date Written: August 5, 2015

Abstract

Variation in factor shares, extensively documented in recent years, implies that standard growth accounting exercises are plagued by measurement issues. First, the standard assumption of constant shares generates a bias in the estimation of the contribution of factors to economic growth. Second, the effect that changes in factor shares have on output depends on the relative abundance of factors and, for this reason, having correct units of measurement for all factors is imperative. We perform a growth accounting exercise that incorporates factor share variation and solves the measurement issue. Results suggest that (i) the correct units of measurement are significantly lower than standard ones for the stocks of physical, natural and human capital per worker (ii) changes in factor shares have an important effect on the growth rates of income per worker for several countries and (iii) the marginal productivity of all factors is positively correlated with per worker income.

Keywords: Factor Shares, Production Function, Measurement, Growth Accounting, Productivity

JEL Classification: O11, O30, O41, O47, E01, E25

Suggested Citation

Zuleta, Hernando and Sturgill, Bradley, Getting Growth Accounting Right (August 5, 2015). Documento CEDE No. 2015-29, Available at SSRN: https://ssrn.com/abstract=2677385 or http://dx.doi.org/10.2139/ssrn.2677385

Hernando Zuleta (Contact Author)

Universidad de los Andes, Colombia ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Bradley Sturgill

Grand Valley State University ( email )

1 Campus Dr.
Allendale, MI 49401-9403
United States

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