On solow's residual with intermediate goods |
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| Authors: | Clive Bell Yhi‐Min Ho |
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| Affiliation: | 1. Fellow of the Institute of Development Studies , University of Sussex;2. Professor of Economics , University of St. Thomas , Houston;3. Associate, Program of Development Studies , Rice University , Houston |
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| Abstract: | Many efforts have been made to identify the sources of the ‘unexplained’ output, better known as the ‘residual’ generated in the process of growth. The paper is an attempt to show that the magnitude of the estimated residual based on Professor Solow's well‐known method actually depends on how the dependent variable in the production function is defined. Part of the computed residual is built‐in if value‐added, instead of gross production, is chosen as the dependent variable when Solow's method is applied to a disaggregated model. The paper also demonstrates how the extent of the bias is measured. |
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