On the Rental Price of Capital and the Profit Rate: The Perils and Pitfalls of Total Factor Productivity Growth
This paper considers the implications of the conceptual difference between the rental price of capital, embedded in the neoclassical cost identity (output equals the cost of labor plus the cost of capital), which is used in growth accounting studies; and the accounting profit rate, which can be derived from the National Income and Product Accounts (NIPA). The neoclassical identity is a 'virtual' identity in that it depends on a series of assumptions (constant returns to scale and perfectly competitive factor markets). The income side of the NIPA also provides an accounting identity for output as the sum of the wage bill plus the gross operating surplus. This identity, however, is a 'real' one, in the sense that it does not depend on any assumption and thus it always holds. It is shown that because the neoclassical cost identity and the income accounting identity according to the NIPA may be expressed as formally equivalent expressions, estimations of aggregate production functions and growth accounting studies are tautologies. Likewise, the test of the hypothesis of competitive markets using Hall's (1988) framework gives rise to a null hypothesis that cannot be rejected statistically. Finally, it is argued that the NIPA identity does hold in constant prices, pace Denison (1972a, 1972b).
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 19 (2007)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CRPE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CRPE20|
When requesting a correction, please mention this item's handle: RePEc:taf:revpoe:v:19:y:2007:i:3:p:317-345. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.