Variable Factor Shares and the Index Number Problem: A Generalization

14 Pages Posted: 28 Sep 2016 Last revised: 15 Oct 2016

See all articles by Bradley Sturgill

Bradley Sturgill

Grand Valley State University

Hernando Zuleta

Universidad de los Andes, Colombia

Date Written: August 18, 2016

Abstract

Factor shares vary over time and across countries, so incorporating variable factor shares into growth and development accounting is both warranted and desirable. However, variable factor shares create an index number problem in analyses relying on our most commonly used production functions. We show that in the presence of competitive factor markets, the problem exists for all workhorse production functions exhibiting constant returns to scale. Therefore, any efforts to align empirical growth research with the reality of the factor share data cannot be carried out using standard techniques. New techniques need to be developed.

Keywords: Factor Shares, Growth Accounting, Production Function, Index Numbers

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

Suggested Citation

Sturgill, Bradley and Zuleta, Hernando, Variable Factor Shares and the Index Number Problem: A Generalization (August 18, 2016). Documento CEDE No. 2016-27, Available at SSRN: https://ssrn.com/abstract=2844321 or http://dx.doi.org/10.2139/ssrn.2844321

Bradley Sturgill (Contact Author)

Grand Valley State University ( email )

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

Hernando Zuleta

Universidad de los Andes, Colombia ( email )

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

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