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Total Factor Productivity Revisited: A Dual Approach to Development Accounting

Author

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  • Shekhar Aiyar

    (International Monetary Fund)

  • Carl-Johan Dalgaard

    (International Monetary Fund)

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

Suggested Citation

  • Shekhar Aiyar & Carl-Johan Dalgaard, 2005. "Total Factor Productivity Revisited: A Dual Approach to Development Accounting," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 82-102, April.
    • Handle: RePEc:pal:imfstp:v:52:y:2005:i:1:p:82-102
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    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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