Chapter7_GrowthAccounting_021109

Chapter7_GrowthAccounting_021109 - Growth Accounting Juan...

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Growth Accounting Duke University and Federal Reserve Bank of Atlanta February 11, 2009 Growth Accounting February 11, 2009 1 / 19
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Growth Accounting Output is produced by inputs capital K and labor L , in combination with the available technology A . Want: decompose the growth rate of output into the growth rate of capital input, the growth rate of labor input and technological progress. This exercise is called growth accounting. Robert Solow (1957). First step in the analysis of fundamental determinants of economic growth. Growth Accounting February 11, 2009 2 / 19
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Aggregate Production Function Maps inputs into output: Y = F ( A , K , L ) A is called total factor productivity (TFP). Cobb-Douglas example: Y = AK α L 1 α CES example: Y = α K ε + ( 1 α ) ( AL ) ε ± 1 ε Growth Accounting February 11, 2009 3 / 19
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Primal Approach Observations in discrete time. Production Function: Y = F ( A , K , L ) . Di/erentiating with respect to time and dividing by Y ˙ Y Y = F A A Y ˙ A A + F K K Y ˙ K K + F L L Y ˙ L L Then: g Y = g A + F K K Y g K + F L L Y g L g A = F A A Y ˙ A A is called TFP growth or multifactor productivity growth. Growth Accounting February 11, 2009 4 ± 19
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Aggregate data will give us ˙ Y Y , K Y , ˙ K K , L Y , and ˙ L L . If we can compute F K and F L g A as the residual. The Solow Residual g A = g Y F K K Y g K F L L Y g L How do we compute F K and F L ? Juan Rubio-Ram±rez (DUKE)
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Chapter7_GrowthAccounting_021109 - Growth Accounting Juan...

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