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Unformatted text preview: particularly concerned with labor productivity   Although he was right about diminishing marginal returns to labor From Gapminder Look up: Graph at:   The average product of labor for an entire industry or the economy as a whole 5 Barry Bosworth and Susan M. Collins Growth Accounting 47 Figure 1 GDP per Capita (constant 2000 international purchasing power parity dollars)  What Causes Growth in Output: Using our production function we can decompose it into: 6000 5000 China 4000  A (technology)  K (capital)  L (labor) 3000 2000 India 1000 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Source: World Bank’s 2006 World Development Indicators. This purchasing power parity measure of GDP standardizes for differences in the prices of common products across countries and over time. This approach is based on a production function in which output is a function of capital, labor, and a term for total factor productivity. As discussed in more detail in Bosworth and Collins (2003), we essentially assume a Cobb-Douglas production function with fixed factor shares: Y AK LH 1 . Y, A, K, and are measures of output, total factor productivity, physical capital Accounting for Growth: Comparing China and India 49 services, and capital’s share of income, respectively. The capital share, , is assumed equal to 0.40 for both countries. L is labor, which is adjusted for improvements in educational attainment H as a proxy for skills; we use average years of schooling as a proxy for skill levels and assume a constant annual return of 7 percent for each Table 1 additional year of education. We China, India, and East Asia, 1978 –2004 rely on a Sources of Growth: recognize that it would be preferable to more general formulation of the production process and to use the income shares (annual percentage rate of change) of each factor to infer its contribution. However, the economies of developing countries have large numbers of self-employed persons, who derive income to output per w...
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This note was uploaded on 04/03/2013 for the course ECON MICRO MISC taught by Professor Collard during the Fall '12 term at NYU.

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