Estimating factor shares from nonstationary panel data

Abstract

The measurement of the sources of economic growth, essential for understanding the long-term perspective of any economy, depends on both the functional form that summarizes technology and factor share values. We estimate the share of physical capital in output, implied by a Cobb–Douglas production function, using fully modified and dynamic ordinary least squares estimators within a panel cointegration framework for 109 countries over the period 1960–2014. For several measures of labor, our estimates range between 0.46 and 0.56 for the worldwide set and vary significantly across regions. The panel estimates are: (i) similar when human capital is taken as a separate factor of production; and (ii) more robust than both the average of the individual cross-country estimates and those obtained in the model in differences. We also find that the CES production function estimates favor the Cobb–Douglas specification. Finally, we provide some evidence of a decline in the share of labor, in line with recent empirical studies.