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Growth And Capital Deepening Since 1870: Is It All Technological Progress?

  • Jakob B. Madsen

Based on an asset pricing model this paper shows that traditional growth accounting exercises attribute too much weight to capital deepening and suggests a method to filter out TFP-induced capital-deepening from the estimates. Using data for 16 industrialised countries, it is shown that labour productivity and capital deepening have been driven by total factor productivity and reductions in the required stock returns over the past 137 years. Furthermore, it is shown that TFP precedes the K-L ratio and not the other way around.

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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 10-09.

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Length: 36 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:mos:moswps:2009-10
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Department of Economics, Monash University, Victoria 3800, Australia

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  1. Jakob B. Madsen, 2009. "Growth And Capital Deepening Since 1870: Is It All Technological Progress?," Monash Economics Working Papers 10-09, Monash University, Department of Economics.
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  10. Edward C. Prescott, 1997. "Needed: a theory of total factor productivity," Staff Report 242, Federal Reserve Bank of Minneapolis.
  11. Jakob B Madsen & E Philip Davis, 2006. "Equity Prices, Productivity Growth and 'The New Economy'," Economic Journal, Royal Economic Society, vol. 116(513), pages 791-811, 07.
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  14. Jones, C.I., 2000. "Sources of U.S. Economic Growth in a World of Ideas," Papers 99-29, United Nations World Employment Programme-.
  15. Madsen, Jakob B, 1998. "General Equilibrium Macroeconomic Models of Unemployment: Can They Explain the Unemployment Path in the OECD?," Economic Journal, Royal Economic Society, vol. 108(448), pages 850-67, May.
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  17. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  18. Madsen, Jakob B., 2007. "Technology spillover through trade and TFP convergence: 135 years of evidence for the OECD countries," Journal of International Economics, Elsevier, vol. 72(2), pages 464-480, July.
  19. Barry Bosworth & Susan M. Collins, 2008. "Accounting for Growth: Comparing China and India," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 45-66, Winter.
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  22. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
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  24. Scott L. Baier & Gerald P. Dwyer & Robert Tamura, 2006. "How Important are Capital and Total Factor Productivity for Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 23-49, January.
  25. 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.
  26. Griliches, Zvi, 1986. "Economic data issues," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 25, pages 1465-1514 Elsevier.
  27. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  28. Huberman, Michael, 2004. "Working Hours of the World Unite? New International Evidence of Worktime, 1870 1913," The Journal of Economic History, Cambridge University Press, vol. 64(04), pages 964-1001, December.
  29. Jakob B. Madsen, 2009. "The Macroeconomics Of Stock Prices In The Medium Term And In The Long Run," Manchester School, University of Manchester, vol. 77(2), pages 127-152, 03.
  30. Madsen, Jakob B., 2004. "Price and wage stickiness during the Great Depression," European Review of Economic History, Cambridge University Press, vol. 8(03), pages 263-295, December.
  31. Michael Huberman & Chris Minns, 2005. "Hours of Work in Old and New Worlds: The Long View, 1870-2000," The Institute for International Integration Studies Discussion Paper Series iiisdp95, IIIS.
  32. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
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