Embodied Growth Accounting with Recombinant Innovation: A New Approach

Abstract

This paper formulates a novel growth accounting framework that attempts to achieve several objectives. The first is to build a bridge between growth accounting and growth theory by resolving their asymmetric interpretations of technical change and the fundamental “sources” of growth. This effort is based on the proposition that rather than the interpretation of technical change being framed by the functional form and parameterization of an economic model, the modeling exercise should be framed by scientific processes and historically-based interpretations of change, including technical change. An implication of this reinterpretation – that change results from recombinations of existing functions and forms – implies that innovation, both physical innovation and brain-centered human innovation must be conveyed through the process of physical and human capital investment. Accordingly, the paper devises a model of embodied growth accounting, omitting the Solow residual, and reliant on relevant elements of the Kennedy-Samuelson-Acemoglu model of factor-augmenting adjustment. Using data for the U.S. during 1950-2000, the model is tested against the conventional growth accounting model.