If factor shares are not constant then we have a measurment problem. can we solve it?
Recent evidence show that factor shares, if properly measured, are far from constant.Moreover, the shares of natural resources and raw labor seem to be negativelycorrelated with income per capita while the share of human and physical capital ispositively correlated with income per capita. Now, if factor shares are not constantthen (i) growth accounting exercises rely on a false assumption and (ii) there is ameasurement problem. The effect that changes in factor shares have on output dependon the relative abundance of factors and, for this reason, it is necessary to havecorrect measures. We propose an empirical methodology to solve the measurementissue and estimate TFP growth.
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