Output Decomposition in the Presence of Input Quality Effects: A Stochastic Frontier Approach

Document Type

Article

Publication Date

12-4-2017

Publication Title

German Economic Review

Volume

20

Issue

4

First page number:

383

Last page number:

409

Abstract

How do physical capital accumulation and total factor productivity (TFP) individually add to economic growth? We approach this question from the perspective of the quality of physical capital and labor, namely the age of physical capital and human capital. We build a unique dataset by explicitly calculating the age of physical capital for each country and each year of our time frame and estimate a stochastic frontier production function incorporating input quality in five regions of countries (Africa, East Asia, Latin America, South Asia and West). Physical capital accumulation generally proves much more important than either the improved quality of factors or TFP growth in explaining output growth. The age of capital decreases growth in all regions except in Africa, while human capital increases growth in all regions except in East Asia.

Keywords

Age of physical capital; Embodiment hypothesis; Output growth; Stochastic frontier; Total factor productivity

Disciplines

Business | Business Analytics

Language

English

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