The Solow–Pasinetti debate on productivity measurement: Review and reformulation

Abstract

It is beyond doubt that Solow’s proposal for “an elementary way of segregating variations in output per head due to technical change from those due to the availability of capital per head” (Solow, 1957, p. 312) leading to the ‘residual’, and hence, TFP growth, has been a crucial development of Neoclassical economics. This notwithstanding, the critique of (and alternative to) Solow’s proposal advanced by Pasinetti (1959) has not been equally acknowledged. The debate re-emerged when a posthumous note by Richard Stone (1998[1960]) triggered a further exchange between the authors. This paper aims at retracing the key conceptual aspects of the discussion, pointing to some limitations of Pasinetti’s original implementation of his measure of productivity changes, and providing an Input–Output generalisation based on Pasinetti’s notion of hyper-integrated labour. Seen in this light, Pasinetti’s computable measure of technical change provides a theoretically sound alternative to perform productivity analyses from a Classical perspective.