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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

    (Institute of Economics, University of Copenhagen)

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 of factors required by standard “primal” estimates. Consistent with the development accounting literature based on primal estimates, we find that TFP accounts for the bulk of differences in income per worker across countries. However, we also find that there are significant differences between TFP series calculated using the two different 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 which do not require a constant elasticity of substitution between factors.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-07.

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Length: 28 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:kud:epruwp:04-07

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Keywords: TFP; development accounting; dual approach; Cobb-Douglas hypothesis;

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  1. Robert E. Hall & Charles I. Jones, 1996. "The Productivity of Nations," NBER Working Papers 5812, National Bureau of Economic Research, Inc.
  2. Kevin J. Stiroh & Dale W. Jorgenson, 1999. "Information Technology and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 109-115, May.
  3. 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.
  4. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
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