Modelling Output Growth Across Manufacturing Sectors: An Initial Approach

Abstract

The main aim of this chapter is to throw light on the following questions. Which is the best measure of capital input in a simple growth model according to neoclassical theory? What are the implications of using capital stock rather than investment share in GDP as the measure of capital? Does a simple extension of the neoclassical growth model to account for technology, human capital and productivity convergence solve the limitations of the more traditional approach? These questions are pertinent for the following reasons. It is important to identify the magnitude of the marginal effect of capital growth on output growth. Traditional theory has it that output is concave in capital because of diminishing returns. The growth accounting exercises suggest a small coefficient for capital, in the order of 1/4 to 1/3, in explaining output growth. New growth theory, as exhibited in the Romer model, suggests a substantially larger coefficient for capital, reflecting the sustained flow of new technology originating from endogenous sources and the presence of increasing returns.KeywordsHuman CapitalCapital StockOutput GrowthGrowth EquationCapital InputThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.