Resource title

Distributional effects of capital and labor on economic growth

Resource image

image for OpenScout resource :: Distributional effects of capital and labor on economic growth

Resource description

In the following we propose a growth model for an economy consisting of firms which are heterogeneous in technologies and input demands. We show that the growth rate in this economy depends not only on changes in the aggregate level of capital and labor, but also on changes in the allocation of these inputs across firms. As the latter effects are neglected in conventional growth models, they are misleadingly captured by the residual TFP measure. In contrast, we are able to quantify the infuence of these components. Our empirical analysis, which is based on structural estimation from firm-level data, reveals that changes in allocation of capital and labor have pronounced effects on GDP-growth for most European countries. Further, we take cross-country differences in the distributional effects into account to improve conventional growth accounting exercises. In particular, we find that they explain additionally up to 17% of growth differences among 19 European countries. Consequently, allowing for heterogeneity in firm-level technologies and input demands increases the explanatory power of the inputs.

Resource author

Michal Paluch, Marc Schiffbauer

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/27161

Resource license

Adapt according to the presented license agreement and reference the original author.