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Variable Factor Shares and the Index Number Problem: A Generalization

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  • Brad Sturgill

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  • Hernando Zuleta

    ()

Abstract

Factor shares vary over time and across countries, so incorporating variable factor shares into growth and development accounting is both warranted and desirable. However, variable factor shares create an index number problem in analyses relying on our most commonly used production functions. We show that in the presence of competitive factor markets, the problem exists for all workhorse production functions exhibiting constant returns to scale. Therefore, any efforts to align empirical growth research with the reality of the factor share data cannot be carried out using standard techniques. New techniques need to be developed.

Suggested Citation

  • Brad Sturgill & Hernando Zuleta, 2016. "Variable Factor Shares and the Index Number Problem: A Generalization," Documentos CEDE 015038, Universidad de los Andes - CEDE.
  • Handle: RePEc:col:000089:015038
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2016-27.pdf
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    References listed on IDEAS

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    1. Jakub Mućk & Peter McAdam & Jakub Growiec, 2018. "Will The “True” Labor Share Stand Up? An Applied Survey On Labor Share Measures," Journal of Economic Surveys, Wiley Blackwell, vol. 32(4), pages 961-984, September.
    2. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 535-568.
    3. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    4. repec:eee:dyncon:v:87:y:2018:i:c:p:74-93 is not listed on IDEAS
    5. Growiec, Jakub & McAdam, Peter & Mućk, Jakub, 2018. "Endogenous labor share cycles: Theory and evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 74-93.
    6. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
    7. Hernando Zuleta, 2008. "An empirical note on factor shares," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(3), pages 379-390.
    8. Vollrath, Dietrich, 2009. "How important are dual economy effects for aggregate productivity?," Journal of Development Economics, Elsevier, vol. 88(2), pages 325-334, March.
    9. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
    10. Zuleta, Hernando, 2012. "Variable factor shares, measurement and growth accounting," Economics Letters, Elsevier, vol. 114(1), pages 91-93.
    11. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters,in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Pierre Barral & Mehdi Senouci, 2018. "Walking on two legs: Growth accounting with labor-saving and capital-saving technical change," Post-Print hal-01709599, HAL.
    2. Antonelli, Cristiano & Feder, Christophe & Quatraro, Francesco, 2018. "Directed Technological Change and Technological Congruence: A New Framework for the Smart Specialization Strategy," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201805, University of Turin.
    3. Pierre Barral & Mehdi Senouci, 2018. "Walking on two legs: Growth accounting with labor-saving and capital-saving technical change," Working Papers hal-01709599, HAL.

    More about this item

    Keywords

    Factor Shares; Growth Accounting; Production Function; Index Numbers;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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