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The Tyranny of the Identity: Growth Accounting Revisited

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  • Jesus Felipe
  • John McCombie

Abstract

It has been argued in the literature that growth accounting may be undertaken by directly differentiating the national income and product accounts identity where total income equals labour's total compensation and total profits. This paper shows that this is simply an exercise in the manipulation of an accounting identity without necessarily having any theoretical foundation. Simulations show that the estimates of total factor productivity growth resulting from growth accounting performed with aggregate monetary data are not equivalent to the true rate of technological progress implied by the micro-data. This suggests that results from the orthodox growth accounting approach may be very misleading.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 20 (2006)
Issue (Month): 3 ()
Pages: 283-299

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Handle: RePEc:taf:irapec:v:20:y:2006:i:3:p:283-299

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Keywords: Total factor productivity growth; accounting identity;

References

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  1. Robert J. Barro, 1998. "Notes on Growth Accounting," NBER Working Papers 6654, National Bureau of Economic Research, Inc.
  2. J. S. L. McCombie, 1998. "'Are There Laws of Production': an assessment of the early criticisms of the," Review of Political Economy, Taylor & Francis Journals, vol. 10(2), pages 141-173.
  3. Charles R. Hulten, 2000. "Total Factor Productivity: A Short Biography," NBER Working Papers 7471, National Bureau of Economic Research, Inc.
  4. J. S. L. McCombie, 2001. "What Does the Aggregate Production Function Show? Further Thoughts on Solow's "Second Thoughts on Growth Theory"," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 23(4), pages 589-615, July.
  5. Jesus Felipe & J. S. L. McCombie, 2003. "Some methodological problems with the neoclassical analysis of the East Asian miracle," Cambridge Journal of Economics, Oxford University Press, vol. 27(5), pages 695-721, September.
  6. Jesus Felipe & J. S. L. McCombie, 2005. "How Sound are the Foundations of the Aggregate Production Function?," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 467-488, Summer.
  7. F. M. Fisher & R. M. Solow & J. R. Kearl, 1974. "Aggregate Production Functions: Some CES xperiments," Working papers 136, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
  9. Jesus Felipe & Carsten Holz, 2001. "Why do Aggregate Production Functions Work? Fisher's simulations, Shaikh's identity and some new results," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(3), pages 261-285.
  10. Simon, Herbert A, 1979. " On Parsimonious Explanations of Production Relations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(4), pages 459-74.
  11. Chang-Tai Hsieh, 2002. "What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets," American Economic Review, American Economic Association, vol. 92(3), pages 502-526, June.
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Cited by:
  1. Kenneth Carlaw & Richard Lipsey, 2011. "Sustained endogenous growth driven by structured and evolving general purpose technologies," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 563-593, October.
  2. Kronenberg, Tobias, 2010. "Finding common ground between ecological economics and post-Keynesian economics," Ecological Economics, Elsevier, vol. 69(7), pages 1488-1494, May.
  3. James Bessen, 2008. "Accounting for Productivity Growth When Technical Change is Biased," Working Papers 0802, Research on Innovation.

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