Advanced Search
MyIDEAS: Login

Are prior restrictions on factor shares appropriate in growth accounting estimations?

Contents:

Author Info

  • Oduor, Jacob

Abstract

Several studies make different prior assumptions on the magnitude of factor shares and scale of production when accounting for economic growth. The initial Solow estimations for instance assumed a capital share of 0.3 and constant returns to scale. Most authors have subsequently used the same restrictions just because they were used in previous studies even when production in the countries under study may not necessarily be taking place under constant returns to scale and capital share may be a value not any close to 0.3. This is likely to distort growth accounting estimation results. This study investigates whether these prior restrictions on factor shares and scale of production as commonly used in the literature are appropriate and whether the Solow assumptions are likely biased even in developed countries. Using Kenyan data and structural vector autoregressions, the main findings are; first, in all cases of the unrestricted estimations, the share of physical capital is less than 0.16. An estimation which imposes 0.3 as the share of physical capital in this case would therefore not be in line with the data generating process leading to biased results. Secondly, in all cases, the explanatory power of the model decreases when the restrictions are imposed implying that the restrictions are not appropriate in growth accounting exercises. The paper further disputes the "styled fact" in growth studies that the Solow assumptions may be relevant for developed countries but not developing countries and concludes that the Solow assumptions may be biased even in developed countries.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VB1-4Y0C2JP-3/2/8bce55e1271bcb8b522c85b97a4347c8
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 2 (March)
Pages: 595-604

as in new window
Handle: RePEc:eee:ecmode:v:27:y:2010:i:2:p:595-604

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Factor shares Growth accounting Structural vector autoregressions;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  2. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  3. Alan Krueger, 1999. "Measuring Labor's Share," NBER Working Papers 7006, National Bureau of Economic Research, Inc.
  4. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  5. Jose De Gregorio, 1991. "Economic Growth in Latin America," IMF Working Papers 91/71, International Monetary Fund.
  6. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
  7. Michalopoulos, Constantine, 1969. "Productivity Growth in Latin America: Comment," American Economic Review, American Economic Association, vol. 59(3), pages 435-39, June.
  8. Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  9. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  10. Abdelhak Senhadji, 2000. "Sources of Economic Growth: An Extensive Growth Accounting Exercise," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 6.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Karl Farmer & Matthias Schelnast, 2013. "Public Debt Reduction in Advanced Countries and Its Impact on Emerging Countries," International Advances in Economic Research, Springer, vol. 19(2), pages 167-188, May.
  2. Muhanji, Stella & Malikane, Christopher & Ojah, Kalu, 2013. "Price and liquidity puzzles of a monetary shock: Evidence from indebted African economies," Economic Modelling, Elsevier, vol. 33(C), pages 620-630.
  3. Cho, Yoonyoung & Tien, Bienvenue N., 2014. "Sub-Saharan Africa's recent growth spurt : an analysis of the sources of growth," Policy Research Working Paper Series 6862, The World Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:27:y:2010:i:2:p:595-604. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.