The Elasticity of Aggregate Output with Respect to Capital and Labor

Dietrich Vollrath

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 4, 470-504

Abstract: It is often assumed that the elasticity of GDP with respect to capital is one-third, but this assumes zero markups and an aggregate production function. I estimate the elasticity allowing markups to vary by industry and with a rich input-output structure. Assumptions about capital costs provide bounds on elasticity. In the United States from 1948–1995, the capital elasticity ranged from 0.19–0.32 and shifted to 0.24–0.37 by 1996–2018. Excluding housing or decapitalizing intellectual property lowers bounds to as low as 0.11–0.26. Based on these elasticities, common estimates of total factor productivity growth represent a lower bound.

JEL-codes: E13 E22 E23 E25 N12 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/mac.20220215

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