Growth Accounting in Action

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***Table 5.2 "Some Examples of Growth Accounting Calculations*" provides information on output growth, capital growth, labor growth, and technology growth. The calculations assume that a = 1/3. In the first row, for example, we see that

growth in technology = 5.5 − [(1/3) × 6.0] − [(2/3) × (2.0 + 1.0)] = 5.5 − 2.0 − 2.0= 1.5. 

Table 5.2 Some Examples of Growth Accounting Calculations*

Growth accounting is an extremely useful tool because it helps us diagnose the causes of economic success and failure. We can look at successful growing economies and find out if they are growing because they have more capital, labor, or skills or because they have improved their technological know-how. Likewise, we can look at economies in which output has fallen and find out whether declines in capital, labor, or technology are responsible. [***We use this tool in Chapter 7 "The Great Depression" to study the behavior of the US economy in the 1920s and 1930s.***]

Researchers have found that different countries and regions of the world have vastly varying experiences when viewed through the lens of growth accounting. A World Bank study found that, in developing regions of the world, capital accumulation was a key contributor to output growth, accounting for almost two-thirds of total growth in Africa, Latin America, East Asia, and Southeast Asia. [***The study covered the period 1960–1987. See World Bank, World Development Report 1991: The Challenge of Development, vol. 1, p. 45, June 30, 1991, accessed August 22, 2011,http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=4780 60&pi PK=64165421&menuPK=64166093&entityID=000009265_3981005112648.***] Technology and human capital growth played a surprisingly small role in these regions, contributing nothing at all to economic growth in Africa and Latin America, for example.