The Measurement of Growth under Embodied Technical Change
The new U.S. data from NIPA contradict some of the well-known Kaldor stylized facts, and call for a reformulation of the modern theory of economic growth. Among these new facts, three must be stressed: A permanent decline in the relative price of durable goods, a permanent increase in the real equipments to real GDP ratio, and a large long run growth rate of equipments relative to the growth rate of non durable consumption. In order to be consistent with these new facts, growth models must include at least two sectors, and the problem of defining aggregate output arises. In this paper, the economic theory of index numbers is used to propose a definition of the output growth rate, which is consistent with a representative agent's preferences in a growth model with embodied technical change. The main findings are that (i) NIPA's methodology measures growth in accordance with the economic theory on index numbers, and (ii) when the growth rate is measured as in NIPA, the contribution of embodied technical change to per capital GDP growth in the U.S. is of 69\%, much larger than the 58\% found by Greenwood, Hercowitz and Krusell (1997).
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- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996.
"Long-Run Implications of Investment-Specific Technological Change,"
RCER Working Papers
420, University of Rochester - Center for Economic Research (RCER).
- Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
- Karl Whelan, 2000.
"A guide to the use of chain aggregated NIPA data,"
Finance and Economics Discussion Series
2000-35, Board of Governors of the Federal Reserve System (U.S.).
- Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
- Michael Reiter, 1999. "Asset prices and the measurement of wealth and saving," Economics Working Papers 396, Department of Economics and Business, Universitat Pompeu Fabra.
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