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Paasche vs. Laspeyres: the elasticity of substitution and bias in measures of TFP growth

Young, Alwyn (1998) Paasche vs. Laspeyres: the elasticity of substitution and bias in measures of TFP growth. NBER Working Papers, 6663. National bureau of economic research, Cambridge, USA.

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Abstract

In recent papers, Nelson and Pack (1995) , Rodrik (1997), and Hsieh (1997a) argue that standard measures of total factor productivity growth in countries where the capital-labour ratio has risen rapidly, e.g. the East Asian NICS, will understate true productivity growth if the elasticity of substitution is less than one and there is labour augmenting technical change. This note shows that this argument increases a Paasche measure of productivity, at the expense of lowering a Laspeyres estimate. The conditions under which total factor productivity growth is consistently underestimated are clarified.

Item Type: Monograph (Working Paper)
Official URL: http://www.nber.org/papers/w6663
Additional Information: © 1998 Alwyn Young
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 6663
Date Deposited: 08 Apr 2011 13:48
URL: http://eprints.lse.ac.uk/35415/

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