Development Accounting, the Elasticity of Substitution, and Non-neutral Technological Change

Marcelo Mello and André de Souza Rodrigues

Revista Brasileira de Economia - RBE, 2017, vol. 71, issue 1

Abstract: We construct a broad panel with 84 countries over the period 1970-2014 with data from the Penn World Tables (PWT) 9.0. We apply the tools of development accounting to our panel. However, we depart from the traditional Cobb-Douglas hypothesis and Hicks-neutral technological change, and assume a Constant Elasticity of Substitution production function, which allows for a constant but non-unitary elasticity of substitution, and for non-neutral technological change. For different values of the elasticity of substitution, and different representation of technological change, we find that the cross-country variation in GDP per worker that can be accounted for by factor inputs is decreasing over time until the mid-2000s, when it reverses its decreasing trend. In addition, our estimates suggests that in the more recent period the proportion of the cross-country variation in GDP per worker explained by factor inputs is around 20%. Finally, we obtain similar results with broad panels from PWT versions 8.1 and 7.0, corroborating our initial findings.

Date: 2017
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