Working Paper: CEPR ID: DP7318
Authors: Liwa Rachel Ngai; Roberto Samaniego
Abstract: Two issues related to mapping a multi-sector model into a reduced-form value-added model are often neglected: the composition of intermediate goods, and the distinction between the productivity indices for value added and for gross output. We illustrate their significance for growth accounting using the well known model of Greenwood, Hercowitz and Krusell (1997), who find that about 60% of economic growth can be attributed to investment-specific technical change (ISTC). When we recalibrate their model to account for the composition of intermediates, we find that ISTC accounts for an even greater share of post-war US growth.
Keywords: growth accounting; intermediate goods; investment-specific technical change; multisector growth models; value added
JEL Codes: E13; O30; O41; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Intermediate goods (L60) | Underestimation of ISTC contribution to economic growth (O49) |
| ISTC (O30) | Economic growth (O49) |
| Composition of intermediates (Y20) | ISTC contribution to economic growth (O39) |
| Relative price of intermediate goods (F16) | Neutral technical change in one-sector model (O41) |
| General input-output structure (C67) | Share of ISTC in economic growth (O49) |
| Gross output prices (E30) | Rates of ISTC (O30) |
| Value-added prices (D46) | Rates of ISTC (O30) |