Abstract
The chapter first discusses key concepts such as real GDP per capita and purchasing power parity. It presents basic stylized facts for the eight countries, both for economic growth and for cross-country comparisons of economic development. The chapter finishes with a thorough description of the neoclassical production function and how it can be used to decompose a time series of GDP growth and a cross section of GDP levels into contributions of factor inputs and productivity.
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Notes
- 1.
The literature on growth accounting is huge, and it is impossible to give an overview here. A general starting point may be the survey of Hulten (2010). For particular methodological questions, references will be given in the main text.
- 2.
In the following we use “capital” to indicate physical capital. When discussing human capital, we always use the qualifier “human” to avoid confusion.
- 3.
The calculations use the approach described in Kónya (2015). The novelty in the current analysis lies in the cross-country comparisons on the one hand and the extension to development accounting on the other hand.
- 4.
The well-known Cambridge-Cambridge debate took place in the 1960s. On one side stood researchers who emphasized the usefulness of the aggregate production functions; their leading figures were associated with the Massachusetts Institute of Technology (Cambridge, MA, USA). On the other side of the debate, scholars—many from the University of Cambridge in England—argued that the aggregate production function should be discarded. About the debate and its aftermath, see the review of Cohen and Harcourt (2003).
- 5.
- 6.
The Conference Board, https://www.conference-board.org/data/economydatabase/.
- 7.
Coyle (2014) provides a detailed account of the difficulties of GDP measurement and discusses its advantages and disadvantages.
- 8.
We should not confuse the basis year used in constructing fixed-price GDP with the basis year used in calculating chain-linked volumes. In the latter case, choosing a basis year is just a choice of units, and it only influences the level, but not the growth rate of real GDP. In the case of fixed-price GDP, however, the basis year has a non-trivial impact on real growth rates as well.
- 9.
From now on, I will use WE to denote the fours Western European economies, and CE to refer to the Visegrad (“Central European”) countries.
- 10.
- 11.
- 12.
Interested readers should consult the important study of Deaton and Heston (2010), who present a detailed discussion of the many pitfalls of using the Penn World Table.
- 13.
See Basu (1996) for an important exception, where constant returns to scale are not assumed ex ante.
- 14.
It is possible to write capacity utilization more generally, and not just for capital, such as in Basu (1996). For labor input this is not only (measured) fluctuation in hours, since work intensity can vary significantly even for a given amount of hours. We return to measurement problems with capacity utilization later.
References
Basu, S. (1996). Procyclical productivity: Increasing returns or cyclical utilization? The Quarterly Journal of Economics, 111, 719–751.
Cohen, A. J., & Harcourt, G. C. (2003). Retrospectives whatever happened to the Cambridge capital theory controversies? Journal of Economic Perspectives, 17, 199–214.
Coyle, D. (2014). GDP: A brief but affectionate history. Princeton: Princeton University Press.
Deaton, A., & Heston, A. (2010). Understanding PPPs and PPP-based national accounts. American Economic Journal: Macroeconomics, 2, 1–35.
Hulten, C. R. (2010). Growth accounting. In Handbook of the economics of innovation (Vol. 2, pp. 987–1031). Amsterdam: Elsevier.
Kónya, I. (2015). Több gép vagy nagyobb hatékonyság? Növekedés, tőkeállomány és termelékenység Magyarországon 1995–2013 között [More machines or increased efficiency? Economic growth, capital and productivity in Hungary between 1995–2013]. Közgazdasági Szemle [Hungarian Economic Review], 62, 1117–1139.
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Kónya, I. (2018). Methodology and Stylized Facts. In: Economic Growth in Small Open Economies. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-69317-0_2
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DOI: https://doi.org/10.1007/978-3-319-69317-0_2
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