Instructions for TFP and growth accounting calculations:
Instructions for TFP and growth accounting calculations
1) From the ECON 333 course web-page, find and go to the Data Sets page and download the Excel spreadsheet file with the data for TFP calculations – save this file to your M:\ drive folder for ECON 333.
2) Open the file and you will find annual data from 1948 to 2012 for the capital stock, labor (employment), and real GDP in index number format.
3) In the column marked TFP, you will also find total factor productivity calculated using the re-arranged Cobb-Douglas production function:
TFP (or A) = GDP / ((Capital^0.3)*(Labor^0.7))
4) Using some empty columns to the right, for each of the Capital, Labor, GDP, and TFP series, calculate the year-to-year annual percentage changes
% change in X = 100 * (Xt-Xt-1) / Xt-1
5) From those annual percentage changes, for each of these four series, calculate the average annual change for the following periods: 1948 to 1973, 1974 to 1983, 1983 to 2012, and 1948 to 2012.
6) Use the growth accounting formula – % chg GDP = % chg TFP + 0.7 * % chg Labor + 0.3 * % chg Capital – to determine the contributions (shares) of the changes in capital, labor, and TFP to the change in GDP for each of the four periods you calculated in 5) above. That is, for example, 0.3 * % chg Capital / % chg GDP would be the share or contribution of capital to GDP growth.
Some questions for consideration and discussion in class – you may find constructing some line or XY (Year as the x-axis variable) graphs or charts may help you “see” patterns, relationships, cycles, and/or trends.
a) Examine the annual percentage changes in the capital stock series. What do you notice – any particular trends or cycles? Do you notice any relationship to the changes in real GDP?
b) Examine the annual percentage changes in the labor (employment) series. What do you notice – any particular trends or cycles? Do you notice any relationship to the changes in real GDP?
c) Examine the annual percentage changes in your TFP series. What do you notice – any particular trends or cycles? Do you notice any relationship to the changes in real GDP?
d) From your calculations in 5) and 6) above, what do you notice and conclude?
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