Use the growth accounting equation to calculate productivity growth, given output growth of 3.5%, capital stock growth of 5%, labor employment growth of 2%, the output elasticity of capital of 0.3, and the output elasticity of labor of 0.7
What will be an ideal response?
The growth accounting equation is ?Y/Y = ?A/A + aK ?K/K + aN ?N/N.
Therefore productivity growth is ?A/A = ?Y/Y - aK ?K/K - aN ?N/N.
For the given values, productivity growth = 3.5% - (0.3)(5%) - (0.7)(2%) = 0.6%.
Economics
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