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Growth Accounting and Economic Factors

The document discusses growth accounting in economics, focusing on the Cobb-Douglas equation and the factors influencing potential GDP growth, including labor force growth, capital growth, and total factor productivity. It provides an example calculation for the growth rate in potential GDP for Azikland, resulting in a 4.1% growth rate. Additionally, it highlights the impact of natural resources on economic growth and various labor supply factors.

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5 views4 pages

Growth Accounting and Economic Factors

The document discusses growth accounting in economics, focusing on the Cobb-Douglas equation and the factors influencing potential GDP growth, including labor force growth, capital growth, and total factor productivity. It provides an example calculation for the growth rate in potential GDP for Azikland, resulting in a 4.1% growth rate. Additionally, it highlights the impact of natural resources on economic growth and various labor supply factors.

Uploaded by

sansaccryptoblock
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Economics

Economic Growth
Growth Accounting and Influencing Factors

Growth Accounting Relations

Cobb-Douglas: Y  TK L(1 )


long-term growth
The growth accounting equation: rate of capital

Y T K L
Growth rate in
potential GDP

Y

T

K
 1 
L
 
Growth rate of total factor elasticities long-term growth
productivity (technology) rate of labor
© Kaplan, Inc.

1
Growth Accounting Relations

The labor productivity growth accounting equation:


Growth rate in potential GDP = long-term growth rate of labor
force + long-term growth rate in labor productivity

Includes capital
deepening and
changes in total
factor productivity
© Kaplan, Inc.

Example: Growth Accounting


Following information is available for Azikland:
Variable Long-Term Forecast
Labor force growth rate 1.5%
Cost of labor/total factor cost 60%
Growth rate of capital 3%
Growth of total factor productivity 2%

Calculate the growth rate in potential GDP.


© Kaplan, Inc.

2
Solution: Growth Accounting
Growth rate of potential GDP:
T K L
   1   
T K L
 2%+(0.4  3%)+(0.6  1.5%)
= 4.1%

© Kaplan, Inc.

Impact of Natural Resources


 Ownership of natural resources is not important as long as
there is access (via trade).
 Ownership of natural resources may actually hinder
growth:
1. Dutch disease: Ownership of natural resources pushes
up the value of domestic currency to the detriment of
other industries.
2. Other industries may be neglected.
© Kaplan, Inc.

3
Labor Supply
 Labor supply factors
1. Demographics: Aging of population
2. Participation: Labor force/working age population
3. Immigration: Can be used to overcome declining labor
force
4. Average hours worked: Cultural factors, labor
regulations, and taxation
© Kaplan, Inc.

Capital and Technology

 Human capital: Qualitative measure of knowledge


and skills
 Physical capital: ICT and non-ICT
 Technological development
 Includes investment in physical and human capital
 Public infrastructure
© Kaplan, Inc.

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