HW4 Notes - Growth AccountingAttempts to decompose the...

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Growth Accounting—Attempts to decompose the contribution of each factor to growth Y=A*F(K,L); A is technology parameter We don’t have data on the growth in technology, so we assume that its effect is the residual after taking into account the effects of capital and labor growth on the growth of output. %(Y/L) growth= 1/3*%(K/L) growth + T.C. (technology change) %(Y/L) growth=%Y growth-%L growth %(K/L) growth=%K growth-%L growth Aggregate Production Function (APF) Y=A*F(K,L) If there is growth in output, there must be changes from technology, capital, or labor. Assume diminishing return to scale. We also usually assume constant return to scale of the APF. Y=A*F(K,L). tY=A*F(tK,tL). Hence Y/L=A*F(K/L,L/L)= A*F(k,1)=A*f(k). Output per capita will only grow when capital per capita K/L increases or technological change. Classical Growth Model: o Capital is not important, so output is solely determined by labor.
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