Accounting for productivity: Is it OK to assume that the world is Cobb-Douglas?
AbstractThe development accounting literature almost always assumes a Cobb-Douglas (CD) production function. However, if in reality the elasticity of substitution between capital and labor deviates substantially from 1, the assumption is invalid, potentially casting doubt on the commonly held view that factors of production are relatively unimportant in accounting for differences in labor productivity. We use international data on relative factor shares and capital-output ratios to formulate a number of tests for the validity of the CD assumption. We find that the CD specification performs reasonably well for the purposes of cross-country productivity accounting.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 31 (2009)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/inca/622617
Development accounting Aggregate production function Elasticity of substitution Total factor productivity;
Other versions of this item:
- Shekhar Aiyar & Carl-Johan Dalgaard, 2008. "Accounting for Productivity: Is it OK to Assume that the World is Cobb-Douglas?," Discussion Papers 08-14, University of Copenhagen. Department of Economics.
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