This paper considers the implications of the conceptual difference between the rental price of capital, embedded in the neoclassical cost identity (output equals the cost of labour plus the cost of capital), and used in growth accounting studies; and the profit rate, which can be derived from the national income and product accounts (NIPA). The neoclassical identity is a "virtual" identity in that it depends on a series of assumptions (constant returns to scale and perfectly competitive factor markets). The income side of the NIPA also provides an accounting identity for output as the sum of the wage bill plus the surplus. This identity, however, is a "real" one, in the sense that it does not depend on any assumptions and thus it holds always. It is shown that because the neoclassical cost identity and the income accounting identity according to the NIPA are formally equivalent expressions, estimations of aggregate production functions and growth accounting studies are tautologies. Likewise, the test of the hypothesis of competitive markets using Hall's (1988) framework gives rise to a null hypothesis that cannot be rejected statistically.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
Publisher Info
Paper provided by Australian National University, Centre for Applied Macroeconomic Analysis in its series CAMA Working Papers with number
2004-10.
Find related papers by JEL classification: O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
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.: