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Total Factor Productivity Revisited: A Dual Approach to Development Accounting

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  • Shekhar Aiyar

    (International Monetary Fund)

  • Carl-Johan Dalgaard

    (International Monetary Fund)

Abstract

This paper tackles a number of issues that are central to cross-country comparisons of productivity. We develop a "dual" method to compare levels of total factor productivity (TFP) across nations that relies on factor price data rather than the data on stocks offactors required by standard "primal" estimates. Consistent with the development accounting literature based on primal estimates, we find that TFP accounts for much of the differences in income per worker across countries. However, we also find that there are significant differences between TFP series calculated using the two approaches. We trace the reason for this divergence to inconsistencies between the data on user costs of capital and physical stocks of capital. In addition, we establish that the standard Cobb-Douglas methodology of assuming a constant capital share of one-third for all countries is a very good approximation to a more general formulation under which countries have different aggregate production functions that do not require a constant elasticity of substitution among factors.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 52 (2005)
Issue (Month): 1 (April)
Pages: 82-102

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Handle: RePEc:pal:imfstp:v:52:y:2005:i:1:p:82-102

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  1. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  2. Robert E. Hall & Charles I. Jones, . "The Productivity of Nations," Working Papers 96012, Stanford University, Department of Economics.
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  4. Kevin J. Stiroh & Dale W. Jorgenson, 1999. "Information Technology and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 109-115, May.
  5. Alwyn Young, 1992. "A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 13-64 National Bureau of Economic Research, Inc.
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