chapter  8
23 Pages

Technical Progress, Capital Formation, and Growth of Productivity

WithLawrence J. Lau

This chapter explores the empirical relationship between capital accumulation and productivity at the aggregate national level. The importance of the contributions of capital and technical progress to the growth of aggregate real output can be readily understood with the help of some simple arithmetic. Most aggregate production function and growth-accounting studies have been conducted under one or more of the traditionally maintained hypotheses of constant returns to scale in capital and labor, neutrality of technical progress, and profit maximization with competitive output and input markets. Capital is measured as utilized capital – the private nonresidential gross capital stock multiplied by the rate of capacity utilization. A final hypothesis on the nature of technical progress is that of identical capital augmentation rate parameters across countries. This hypothesis, conditional on the maintained hypotheses of the study, and the hypotheses of identical capital and labor augmentation level parameters, and purely capital-augmenting technical progress, can be rejected.