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Revisiting Solow’s Decomposition of Economic and Productivity Growth

  • Tung Liu

    ()

    (Department of Economics, Ball State University)

  • Kui-Wai Li

    ()

    (City University of Hong Kong, Hong Kong SAR)

By relaxing the two assumptions of constant returns to scale and perfect competition in the product market used by Solow (1957), this paper identifies a new decomposition of economic and productivity growth. The sources of economic growth are; adjusted economies of scales effect, weighted sum of input growth, and technical progress. The sources of productivity growth are; adjusted economies of scale effect and technical progress. The weight used for the input growth is the cost share of each input.

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File URL: http://econfac.iweb.bsu.edu/research/workingpapers/bsuecwp200805liu.pdf
File Function: First version, 2008
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Paper provided by Ball State University, Department of Economics in its series Working Papers with number 200805.

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Length: 12 pages
Date of creation: Dec 2008
Date of revision: Dec 2008
Handle: RePEc:bsu:wpaper:200805
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Web page: http://www.bsu.edu/econ

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  1. Hanoch, Giora, 1975. "The Elasticity of Scale and the Shape of Average Costs," American Economic Review, American Economic Association, vol. 65(3), pages 492-97, June.
  2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  3. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  4. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  6. Azzeddine Azzam & Rigoberto Lopez & Elena Lopez, 2004. "Imperfect Competition and Total Factor Productivity Growth," Journal of Productivity Analysis, Springer, vol. 22(3), pages 173-184, November.
  7. Paul W. Bauer, 1988. "Decomposing TFP growth in the presence of cost inefficiency, nonconstant returns to scale, and technological progress," Working Paper 8813, Federal Reserve Bank of Cleveland.
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