Variable Factor Shares and the Index Number Problem: A Generalization

Brad Sturgill () and Hernando Zuleta

No 15038, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: 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 relying 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, any efforts to align empirical growth research with the reality of the factor share data cannot be carried out using standard techniques. New techniques need to be developed.

Keywords: Factor Shares; Growth Accounting; Production Function; Index Numbers (search for similar items in EconPapers)
JEL-codes: E01 E25 O11 O30 O41 O47 (search for similar items in EconPapers)
Pages: 14
Date: 2016-08-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000089:015038

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