Journal Article

Capital, innovation, and growth accounting

Philippe Aghion and Peter Howitt

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 23, issue 1, pages 79-93
Published in print March 2007 | ISSN: 0266-903X
Published online January 2007 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grm007
Capital, innovation, and growth accounting

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In this paper we show how moving from the neoclassical model to the more recent endogenous growth paradigm can lead to markedly different interpretations of the same growth accounting data. In neoclassical theory, even if between 30 and 70 per cent of the growth of output per worker in OECD countries can be ‘accounted for’ by capital accumulation, yet inhe long run all of the growth in output per worker is caused by technological progress. Next, we develop a hybrid model in which capital accumulation takes place as in the neoclassical model, but productivity growth arises endogenously, as in the Schumpeterian model. The hybrid model is consistent with the empirical evidence on growth accounting, as is the neoclassical model. But the causal explanation that it provides for economic growth is quite different from that of the neoclassical model.

Keywords: capital; innovation; growth; O0

Journal Article.  6251 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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