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Development accounting with wedges: the experience of six European countries

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  • Konya Istvan

    (Magyar Nemzeti Bank and Central European University, 1054 Budapest, Szabadsag ter 8-9, Hungary)

Abstract

The paper interprets the growth experience of three Western European countries (France, Germany and the UK) and three Central-Eastern European economies (the Czech Republic, Hungary, and Poland) through the lens of the neoclassical growth model. It combines the methodologies of Development Accounting (Caselli, F. 2005. “Accounting for Cross-Country Income Differences.” In Handbook of Economic Growth, Chapter 9, 679–741.) and Business Cycle Accounting (Chari, V. V., P. J. Kehoe, and E. R. McGrattan. 2007. “Business Cycle Accounting.” Econometrica 75 (3): 781–836.) to calculate distortions – “wedges” – in production efficiency, and in the labor and capital markets. The exercise sheds light on the extent and evolution of factor market distortions between 1996 and 2009. The main result of the paper is that capital and labor market distortions do not explain income differences across the two country groups, but are important to understand income differences within groups. In addition, observed labor and capital taxes are related to the measured wedges, but significant unexplained components remain. Reducing labor and capital market distortions would lead to significant output gains in all countries.

Suggested Citation

  • Konya Istvan, 2013. "Development accounting with wedges: the experience of six European countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-42, June.
    • Handle: RePEc:bpj:bejmac:v:13:y:2013:i:1:p:42:n:6
    DOI: 10.1515/bejm-2012-0153
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    2. Kónya, István, 2017. "A magyar növekedésről - egy régimódi megközelítés [Hungarian growth: an old-fashioned approach]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 915-929.
    3. Kónya, István & Benczúr, Péter, 2013. "Kamatfelár, hitelválság és mérlegalkalmazkodás egy kis, nyitott gazdaságban [Interest premium, credit crisis and balance-sheet adjustment in a small open economy]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 940-964.
    4. Ibhagui, Oyakhilome, 2019. "Explaining differences in income levels of Africa's largest economies: A development accounting perspective," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 9(2), pages 216-248.
    5. Ibhagui, Oyakhilome, 2019. "Explaining Differences in Income Levels of Africa’s Largest Economies – A Development Accounting Perspective," MPRA Paper 95622, University Library of Munich, Germany.
    6. Kónya, István, 2015. "Több gép vagy nagyobb hatékonyság?. Növekedés, tőkeállomány és termelékenység Magyarországon 1995-2013 között [More machines or increased efficiency?. Economic growth, capital and productivity in H," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1117-1139.
    7. Chakraborty Suparna & Otsu Keisuke, 2013. "Business cycle accounting of the BRIC economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-33, September.
    8. Ibhagui, Oyakhilome, 2015. "Development Accounting of Africa’s Largest Economies – Explaining Differences in Income Levels," MPRA Paper 89081, University Library of Munich, Germany.

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