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Chapter7_GrowthAccounting_021709

Chapter7_GrowthAccounting_021709 - Growth Accounting Juan...

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Growth Accounting Juan Rubio-Ram°rez Duke University and Federal Reserve Bank of Atlanta February 17, 2009 Juan Rubio-Ram°rez (DUKE) Growth Accounting February 17, 2009 1 / 17

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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. Juan Rubio-Ram°rez (DUKE) Growth Accounting February 17, 2009 2 / 17
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 Juan Rubio-Ram°rez (DUKE) Growth Accounting February 17, 2009 3 / 17

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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 = F A ˙ A + F K ˙ K + F L ˙ L Dividing by Y , A , and L , we get ˙ 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.
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