DP7318 Mapping prices into productivity in multisector growth models

Author(s): Liwa Rachel Ngai, Roberto Samaniego
Publication Date: June 2009
Keyword(s): growth accounting, Intermediate goods, investment-specific technical change, multisector growth models, value added
JEL(s): E13, O30, O41, O47
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7318

Two issues related to mapping a multi-sector model into a reduced-form value-added model are often neglected: the composition of intermediate goods, and the distinction between the productivity indices for value added and for gross output. We illustrate their significance for growth accounting using the well known model of Greenwood, Hercowitz and Krusell (1997), who find that about 60% of economic growth can be attributed to investment-specific technical change (ISTC). When we recalibrate their model to account for the composition of intermediates, we find that ISTC accounts for an even greater share of post-war US growth.