Total Factor Productivity Revisited: A Dual Approach to Development Accounting

Shekhar Aiyar and Carl-Johan Dalgaard

No 04-07, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper tackles a number of issues that are central to cross-country comparisons of productivity. We develop a “dual” method to compare levels of total factor productivity (TFP) across nations that relies on factor price data rather than the data on stocks of factors required by standard “primal” estimates. Consistent with the development accounting literature based on primal estimates, we find that TFP accounts for the bulk of differences in income per worker across countries. However, we also find that there are significant differences between TFP series calculated using the two different approaches. We trace the reason for this divergence to inconsistencies between the data on user costs of capital and physical stocks of capital. In addition, we establish that the standard Cobb-Douglas methodology of assuming a constant capital share of one-third for all countries is a very good approximation to a more general formulation under which countries have different aggregate production functions which do not require a constant elasticity of substitution between factors.

Keywords: TFP; development accounting; dual approach; Cobb-Douglas hypothesis (search for similar items in EconPapers)
JEL-codes: O47 O57 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004-04
New Economics Papers: this item is included in nep-dev and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Total Factor Productivity Revisited: A Dual Approach to Development Accounting (2005)
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