Impact of technical change via intermediate consumption: exhaustive general equilibrium growth accounting and reassessment applied to USA 1954–1990

Georges Daw

Portuguese Economic Journal, 2024, vol. 23, issue 1, No 5, 55-87

Abstract: Abstract Should intermediate consumption (IC), which historically accounts for around 50% of the value of production, be considered in growth accounting? The current growth accounting exercise does not model IC. This means that when IC experiences productivity gains, its capacity to transmit them to the whole economy is currently neglected. The rare current literature on this issue diverges substantially on the importance of the role of the IC as an explanatory factor of growth. We propose a bi-sectoral general equilibrium model that allows for an accounting where each productive sector contributes to growth in proportion to its weight in the economy. Our theoretical framework and the (proportional) growth accounting exercise it allows (i.e., calculating the contribution of technical change conveyed by IC and other usual key factors, such as: Global and sectoral TFP, Global and sectoral Capital deepening) are thoroughly presented. The proposed framework is autonomous and calibrated pedagogically. However, to illustrate empirically in a comparative way how it works, we have shown that it can also be reduced to a particular case of the literature and calibrated it on the US economy (1954–1990). Although this consistently improves the growth accounting accuracy, our results reveal that the IC has nevertheless contributed only 2% to US growth. We compared this result to the literature. The key factors influencing its magnitude were also highlighted and discussed.

Keywords: General equilibrium models for growth accounting; Technical change; Relative prices; Gross output; value-added; sectoral productions; and IC; Growth Residual or Total Factor Productivity (TFP) (search for similar items in EconPapers)
JEL-codes: D24 D58 L11 O41 O47 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10258-022-00224-z

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