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Development Accounting, the Elasticity of Substitution, and Non-neutral Technological Change

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  • Mello, Marcelo de Albuquerque e
  • Rodrigues, André de Souza

Abstract

We construct a broad panel with 84 countries over the period 1970-2014 with data from the Penn World Tables (PWT) 9.0. We apply the tools of development accounting to our panel. However, we depart from the traditional Cobb-Douglas hypothesis and Hicks-neutral technological change, and assume a Constant Elasticity of Substitution production function, which allows for a constant but non-unitary elasticity of substitution, and for non-neutral technological change. For different values of the elasticity of substitution, and different representation of technological change, we find that the cross-country variation in GDP per worker that can be accounted for by factor inputs is decreasing over time until the mid-2000s, when it reverses its decreasing trend. In addition, our estimates suggests that in the more recent period the proportion of the cross-country variation in GDP per worker explained by factor inputs is around 20%. Finally, we obtain similar results with broad panels from PWT versions 8.1 and 7.0, corroborating our initial findings.

Suggested Citation

  • Mello, Marcelo de Albuquerque e & Rodrigues, André de Souza, 2017. "Development Accounting, the Elasticity of Substitution, and Non-neutral Technological Change," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 71(1), May.
    • Handle: RePEc:fgv:epgrbe:v:71:y:2017:i:1:a:64336
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    4. Caselli, Francesco, 2005. "Accounting for cross-country income differences," LSE Research Online Documents on Economics 5266, London School of Economics and Political Science, LSE Library.
    5. Caselli, Francesco, 2005. "Accounting for cross-country income differences," LSE Research Online Documents on Economics 3567, London School of Economics and Political Science, LSE Library.
    6. Reda Cherif & Mr. Rabah Arezki, 2010. "Development Accounting and the Rise of TFP," IMF Working Papers 2010/101, International Monetary Fund.
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