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The Tyranny of the Identity: Growth Accounting Revisited

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  • Jesus Felipe
  • John McCombie

Abstract

It has been argued in the literature that growth accounting may be undertaken by directly differentiating the national income and product accounts identity where total income equals labour's total compensation and total profits. This paper shows that this is simply an exercise in the manipulation of an accounting identity without necessarily having any theoretical foundation. Simulations show that the estimates of total factor productivity growth resulting from growth accounting performed with aggregate monetary data are not equivalent to the true rate of technological progress implied by the micro-data. This suggests that results from the orthodox growth accounting approach may be very misleading.

Suggested Citation

  • Jesus Felipe & John McCombie, 2006. "The Tyranny of the Identity: Growth Accounting Revisited," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 283-299.
  • Handle: RePEc:taf:irapec:v:20:y:2006:i:3:p:283-299
    DOI: 10.1080/02692170600735963
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    References listed on IDEAS

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    4. J. S. L. McCombie, 2001. "What Does the Aggregate Production Function Show? Further thoughts on Solow’s “Second thoughts on Growth Theory”," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(4), pages 589-615, July.
    5. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-551, August.
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    7. Charles R. Hulten, 2000. "Total Factor Productivity: A Short Biography," NBER Working Papers 7471, National Bureau of Economic Research, Inc.
    8. Jesus Felipe & F. Gerard Adams, 2005. ""A Theory of Production" The Estimation of the Cobb-Douglas Function: A Retrospective View," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 427-445, Summer.
    9. Jesus Felipe & Carsten Holz, 2001. "Why do Aggregate Production Functions Work? Fisher's simulations, Shaikh's identity and some new results," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(3), pages 261-285.
    10. Chang-Tai Hsieh, 2002. "What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets," American Economic Review, American Economic Association, vol. 92(3), pages 502-526, June.
    11. Jesus Felipe & J. S. L. McCombie, 2005. "How Sound are the Foundations of the Aggregate Production Function?," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 467-488, Summer.
    12. J. S. L. McCombie, 1998. "'Are There Laws of Production': an assessment of the early criticisms of the," Review of Political Economy, Taylor & Francis Journals, vol. 10(2), pages 141-173.
    13. Jesus Felipe & J. S. L. McCombie, 2003. "Some methodological problems with the neoclassical analysis of the East Asian miracle," Cambridge Journal of Economics, Oxford University Press, vol. 27(5), pages 695-721, September.
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    Cited by:

    1. John S.L. McCombie, 2011. "'Cantabrigian Economics' and the aggregate production function," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(1), pages 165-182.
    2. Kronenberg, Tobias, 2010. "Finding common ground between ecological economics and post-Keynesian economics," Ecological Economics, Elsevier, vol. 69(7), pages 1488-1494, May.
    3. Javier López-Bernardo & Félix López-Martínez & Engelbert Stockhammer, 2016. "A Post-Keynesian Response to Piketty's ‘Fundamental Contradiction of Capitalism’," Review of Political Economy, Taylor & Francis Journals, vol. 28(2), pages 190-204, April.
    4. Francis Cripps & Alex Izurieta & Ajit Singh, 2011. "Forum 2011," Development and Change, International Institute of Social Studies, vol. 42(1), pages 228-261, January.
    5. Jamee K. Moudud, 2010. "Strategic Competition, Dynamics, and the Role of the State," Books, Edward Elgar Publishing, number 4241.
    6. James Bessen, 2008. "Accounting for Productivity Growth When Technical Change is Biased," Working Papers 0802, Research on Innovation.
    7. Richters, Oliver, 2015. "Integrating Energy Use into Macroeconomic Stock-Flow Consistent Models," EconStor Theses, ZBW - German National Library of Economics, number 154764.
    8. Rup Singh, 2015. "Forces of economic growth in China, India, and other Asian countries," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 29(1), pages 62-81, May.
    9. Kenneth Carlaw & Richard Lipsey, 2011. "Sustained endogenous growth driven by structured and evolving general purpose technologies," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 563-593, October.
    10. W. Robert J. Alexander, 2015. "The Keynesian IS-MR Model and Military Spending," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(2), pages 213-221, April.

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