Centre for Vocational Education Research LSE RSS Email Facebook Twitter


CEP discussion paper
Mapping Prices into Productivity in Multisector Growth Models
L. Rachel Ngai and Roberto M. Samaniego
May 2008
Paper No' CEPDP0869:
Full Paper (pdf)

JEL Classification: E13; O30; O41; O47

Tags: intermediate goods; investment-specific technical change; growth accounting; gross output; multisector growth models

Two issues related to mapping a multi-sector model into a reduced-form value-added model are often neglected: the composition of intermediate goods, and the distinction between value added productivity and gross output productivity. We demonstrate their quantitative significance for the case of the well known model of Greenwood, Hercowitz and Krusell (1997), who find that about 60% of economic growth can be attributed to investment-specific technical change (ISTC). When we recalibrate their model to allow for even a small equipment share of intermediates, we find that ISTC accounts for almost the entirety of postwar US growth.