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The relationship between factor shares and economic development


  • Sturgill, Brad


The stability of factor shares has long been considered one of the “stylized facts” of macroeconomics. Most factor share studies, however, acknowledge only two factors of production (total capital and total labor), which yields misleading results. I distinguish between reproducible and non-reproducible factors of production. I disentangle physical capital’s share from natural capital’s share and human capital’s share from unskilled labor’s share. Results reveal that non-reproducible factor shares decrease with the stage of economic development, and reproducible factor shares increase with the stage of economic development. This evidence suggests that studies relying on the macroeconomic paradigm of constant factor shares should be revisited. The evidence also supports endogenous growth models that allow technical progress to manifest itself via changes in factor shares.

Suggested Citation

  • Sturgill, Brad, 2012. "The relationship between factor shares and economic development," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1044-1062.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:4:p:1044-1062 DOI: 10.1016/j.jmacro.2012.07.005

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    References listed on IDEAS

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    Cited by:

    1. Brad Sturgill & Hernando Zuleta, 2017. "Variable factor shares and the index number problem: a generalization. Abstract Factor shares vary over time and across countries, so incorporating variable factor shares into growth and development a," Economics Bulletin, AccessEcon, vol. 37(1), pages 30-37.
    2. Hernando Zuleta, 2015. "Getting Growth Accounting Right," DOCUMENTOS CEDE 013814, UNIVERSIDAD DE LOS ANDES-CEDE.
    3. Peretto, Pietro F. & Seater, John J., 2013. "Factor-eliminating technical change," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 459-473.
    4. repec:eee:jmacro:v:52:y:2017:i:c:p:23-38 is not listed on IDEAS
    5. Sturgill, Brad, 2014. "Back to the basics: Revisiting the development accounting methodology," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 52-68.
    6. Growiec, Jakub & McAdam, Peter & Mućk, Jakub, 2018. "Endogenous labor share cycles: Theory and evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 74-93.
    7. Antonelli, Cristiano, 2016. "Technological congruence and the economic complexity of technological change," Structural Change and Economic Dynamics, Elsevier, vol. 38(C), pages 15-24.

    More about this item


    Factor shares; Technological progress; Economic development;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development


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