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Total Factor Productivity Revisited: A Dual Approach to Development Accounting Shekhar Aiyar and Carl-Johan Dalgaard Full Text of this Article (PDF 139K) 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 much of the differences in income per worker
across countries. However, we also find that there are significant differences
between TFP series calculated using the two 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 that do not require a constant elasticity of substitution among
factors. |
