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Work
in Progress
Variable Factor Shares, Units of Measurement and Growth Accounting: an
Empirical Exercise (with Hernando Zuleta)
Abstract: The global decline of labor shares has
been extensively documented in the last years. Additionally, the shares of
natural resources and raw labor seem to be negatively correlated with income
per capita while the shares of human and physical capital are positively
correlated with income per capita. The
variability of factor shares implies that growth accounting exercises rely on
false assumptions. First, the standard assumption of constant shares generates
an overestimation of the contribution of non-reproducible factors to economic
growth and an underestimation of the contribution of reproducible factors.
Second, the effect that changes in factor shares have on output depend on the
relative abundance of factors and, for this reason, it is necessary to have
correct units of measurement for all the factors. We propose a growth
accounting methodology that incorporates the variability of factor shares and
solves the measurement issue. We also build a database for 34, 62 and 58
countries for 1995, 2000 and 2005, respectively, disentangling physical
capital’s share from natural capital’s share and human capital’s share from
unskilled labor’s share. With this database we apply the methodology proposed
and perform a growth accounting regression. Our results suggest that (i) the
correct units of measurement are significantly lower than standard ones for
both the stock of physical capital per worker and the stock of natural capital
per worker, (ii) the contribution of total factor productivity to the growth
rate of income is, on average, smaller than many estimates in the literature (iii)
the marginal productivity of all factors is positively correlated with per worker
income.
Factor Shares, Economic Growth and the Industrial Revolution (with Dan
Giedeman)
Abstract:
Despite the introduction of many
famous inventions, growth in the total factor productivity (TFP) residual
during the British industrial revolution is typically estimated to have been
relatively slow. Virtually all growth
accounting studies pertaining to the British industrial revolution assume that
factor shares were constant parameters. The data indicate that factor shares
were not constant. Labor and land shares
decreased during the period while physical capital’s share increased. There is no theoretical reason to limit the
manifestation of technical progress to changes in the TFP parameter that
augments capital, labor or both in standard production functions. If technical progress alters factor shares then
the TFP residual can be an inaccurate indicator of technical progress. This
paper presents a simple model of share-altering technical progress and provides
a growth accounting methodology that allows for variable factor shares. Results reveal that factor shares explain a non-trivial
portion of Britain’s growth in output per over the period 1770-1860 and suggest
that productivity growth, though relatively modest, may have been faster than
previously thought.
JEL Codes: N13, N73, E25, O11, O47, O57
Keywords :
Industrial Revolution, growth accounting, factor shares, technical progress
The Effects of Time Varying Factor Shares on the Measurement of Total
Factor Productivity: Time Series Evidence from the U.S.
Endogenous Saving in a Model of Factor-Eliminating Technical Change
Regional
Growth and Factor Shares (with Laudo Ogura)