DP7318 Mapping prices into productivity in multisector growth models

Author(s): Liwa Rachel Ngai , Roberto Samaniego

Publication Date: June 2009

Keyword(s): Intermediate goods , investment-specific technical change , growth accounting , value added , multisector growth models

JEL(s): E13 , O30 , O41 , O47

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP7318.asp.asp

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.