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Brad Sturgill and Hernando Zuleta
''Variable factor shares and the index number problem: a generalization.''
( 2017, Vol. 37 No.1 )
Factor shares vary over time and across countries, so incorporating variable factor shares into growth and development accounting is both warranted and desirable. However, variable factor shares create an index number problem in analyses that rely on our most commonly used production functions. We show that in the presence of competitive factor markets, the problem exists for all workhorse production functions exhibiting constant returns to scale. Therefore, attempts to align empirical growth research with the reality of the factor share data cannot be made using standard techniques. New techniques need to be developed.
Keywords: Factor Share, Growth Accounting, Production Function, Index Number
JEL: O4 - Economic Growth and Aggregate Productivity: General
O3 - Technological Change; Research and Development: General
Manuscript Received : Sep 01 2016 Manuscript Accepted : Jan 13 2017

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