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Back to the basics: Revisiting the development accounting methodology

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  • Sturgill, Brad

Abstract

The standard baseline estimate in development accounting is imprecise because of a mismatch between the estimate of physical capital and the estimate of physical capital’s share, the fraction of total income accruing to physical capital. I adjust for this mismatch, and in so doing, incorporate natural capital. I also treat factor shares as variables, not constant parameters. To accommodate these adjustments, I carry out a development accounting analysis using translog multilateral indices of outputs, inputs and productivity. Results reveal that the correction for the mismatch between physical capital and its share, which is the weight assigned to the physical capital input in development accounting, reduces the variation in output per worker explained by observables by as much as 15 percentage points relative to the standard baseline. Most of this reduction is due to a decline in the explanatory power of physical capital per worker. Natural capital per worker, which is usually ignored, is found to explain up to 7.2% of the variation in cross-country output per worker. Variation in factor shares, also omitted from most studies, explains up to 6.3% of the variation in cross-country output per worker, which is nearly half as much as all observables together explain.

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  • Sturgill, Brad, 2014. "Back to the basics: Revisiting the development accounting methodology," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 52-68.
  • Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:52-68
    DOI: 10.1016/j.jmacro.2014.06.005
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    Cited by:

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    2. Pierre Barral & Mehdi Senouci, 2018. "Walking on two legs: Growth accounting with labor-saving and capital-saving technical change," Post-Print hal-01709599, HAL.
    3. Dawson, John W. & Sturgill, Brad, 2022. "Market Institutions and Factor Shares Across Countries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 266-289.
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    6. Georges Daw, 2024. "Impact of technical change via intermediate consumption: exhaustive general equilibrium growth accounting and reassessment applied to USA 1954–1990," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 55-87, January.
    7. Hernando Zuleta & Daniel Gamboa, 2019. "Factor reallocation and growth: what if there are labor saving innovations?," Documentos CEDE 17199, Universidad de los Andes, Facultad de Economía, CEDE.
    8. John Seater & Karine Yenokyan, 2019. "Factor Augmentation, Factor Elimination, And Economic Growth," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 429-452, January.
    9. Barker, Tom & Üngör, Murat, 2019. "Vietnam: The next asian Tiger?," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 96-118.
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    11. Pierre Barral & Mehdi Senouci, 2018. "Walking on two legs: Growth accounting with labor-saving and capital-saving technical change," Working Papers hal-01709599, HAL.

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    More about this item

    Keywords

    Development accounting; Translog multilateral index; Factor share;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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