Growth Accounting in Economic History: Findings, Lessons and New Directions

Abstract

There is now a large volume of growth accounting estimates covering the long run experience of advanced countries. However, most of the studies in economic history are not based on state‐of‐the‐art methods. There is a trade‐off between maintaining international comparability and achieving the best results for individual countries. A one‐size‐fits‐all approach will not always do justice to the variety of historical experiences since the conventional assumptions may sometimes be inappropriate. Nevertheless, growth‐accounting studies have produced some eye‐catching results which provide food for thought both for economic historians and for growth economists. These include (1) the finding that TFP growth was comparatively slow during the First Industrial Revolution, (2) Solow's famous conclusion that TFP growth accounted for 7/8ths of American labour‐productivity growth was atypical, (3) the impact of new general‐purpose technologies on growth typically takes a long time to materialize, ICT being the notable exception and (4) that capital‐deepening was much more important relative to TFP growth in east Asian than in western European catch‐up growth. Growth accounting is undoubtedly a valuable item in the cliometrician's toolkit. Nonetheless, we anticipate the introduction of more sophisticated methods and look forward to progress in understanding what explains marked differences in TFP performance.

The Role of Capital and Productivity in Accounting for Income Differences Since 1913

“…In Japan, postwar economic development relied on importing foreign machinery and equipment (Odagiri and Goto, 1996). Although there is discussion about the precise role of capital accumulation in East Asia (Hsieh, 2002), Crafts and Woltjer (2020) conclude that TFP contributed relatively little to catch‐up growth, as compared with the experience of Southern European countries at similar initial levels of labour productivity. In Latin America, both TFP and capital deepening account for economic development between 1960 and 1980, although these along with output per worker plummeted until 2000 (Bosworth and Collins, 2003).…”

“…Our cross‐country approach complements growth accounting studies such as the work of Bergeaud et al . (2016), who provide a long‐run perspective on productivity growth across 13 1 advanced economies and, more generally, the literature reviewed by Crafts and O'Rourke (2014) and Crafts and Woltjer (2020) on the sources of economic growth over the twentieth century. With our dataset, we are able to track the importance of differences in the levels of produced and human capital in accounting for income differences throughout the 20th century.…”

Long‐run Factor Accumulation and Productivity Trends in Italy

“…(2010), for example, but only for the post‐1980 period. The challenges of the so‐called ‘level accounting’, which allows quantifying the proximate sources of the differences in income levels across countries in a given point of time, are referred to, for example, in Denison (1967) and, much more recently, in Crafts and Woltjer (2019). The construction of sectoral PPP benchmarks is far from straightforward, and a number of studies (e.g.…”

“…Indeed, in the years 1929–1938, GDP per capita grew by almost 1% per year, similarly to the immediate post‐unification period, despite the significant drag stemming from the declining labour participation rate. Italy's GDP per capita growth rate then jumped to a spectacular 5.3% per year, which defined its ‘Golden Age’, in which Italy undertook the catch‐up process that characterized post‐WWII reconstruction growth in all Western industrialized nations (Vonyó, 2008; Crafts and Woltjer, 2019).…”

“…In Table C1, we provide the same table with fixed factor shares (0.65 for labour; 0.35 for capital) in order to assess any significant differences relative to Table 3 and to allow comparisons with results for other countries, whose growth‐accounting exercises are generally based on fixed shares. In the economic history literature the factor share of capital is generally fixed in the range of 0.25 and 0.40 (Crafts and Woltjer, 2019); indeed, Aiyar and Dalgaard (2005) point to a constant profit share of one third as a good approximation of in the long run. We find that over the entire period, TFP, computed with fixed shares, performed slightly better mostly in association with a lower contribution of capital.…”