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Output, Capital, and Labor in the Short, and Long-Run

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  • Daniel Levy

    (Bar-Ilan University)

Abstract

Using a new series of capital stock and frequency domain analysis, this paper provides new empirical evidence on the relative importance of capital and labor in the determination of output in the short and long- run. Contrary to the common practice in the traditional growth accounting literature of assigning weights of 0.3 and 0.7 to capital and labor inputs respectively, the evidence presented here suggests that capital is a far more important factor than labor for determination of output at and near the zero frequency band. Furthermore, I show that the zero-frequency labor elasticity of output may well be close to zero, or even zero. Additional findings reported here support the traditional accelerator model of investment as a good description of the long-run investment process.

Suggested Citation

  • Daniel Levy, 2005. "Output, Capital, and Labor in the Short, and Long-Run," Development and Comp Systems 0505012, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0505012
    Note: Type of Document - pdf; pages: 31
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    File URL: http://econwpa.repec.org/eps/dev/papers/0505/0505012.pdf
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    References listed on IDEAS

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    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    2. Levy, Daniel, 1990. "Aggregate output, capital, and labor in the post-war U.S. economy," Economics Letters, Elsevier, vol. 33(1), pages 41-45, May.
    3. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
    4. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
    5. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-698, June.
    6. John Hassler & Petter Lundvik & Torsten Persson & Paul Soderlind, 1992. "The Swedish business cycle: stylized facts over 130 years," Discussion Paper / Institute for Empirical Macroeconomics 63, Federal Reserve Bank of Minneapolis.
    7. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
    8. King, R.G. & Baxter, M., 1990. "Productive Externalities And Cyclical Volatility," RCER Working Papers 245, University of Rochester - Center for Economic Research (RCER).
    9. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
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    Citations

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    Cited by:

    1. Snir, Avichai & Levy, Daniel, 2010. "Economic Growth in the Potterian Economy," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 211-236.
    2. Daniel Levy & Hashem Dezhbakhsh, 2003. "On the typical spectral shape of an economic variable," Applied Economics Letters, Taylor & Francis Journals, vol. 10(7), pages 417-423.
    3. Avichai Snir & Daniel Levy, 2007. "Human Capital and Economic Growth in the Potterian Economy," Emory Economics 0702, Department of Economics, Emory University (Atlanta).

    More about this item

    Keywords

    Growth Accounting; Capital Investment; Output Fluctuation; Employment; Business Cycles and Aggregate Fluctuation; Frequency Domain Analysis; Spectrum and Cross-Spectrum; Coherence; Phase Shift; Gain; Zero-Frequency; Capital and Labor Elasticity of Output; Short-Run; Long- Run; Capital's and Labor's Share in Output; Accelerator Model of Investment;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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