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Growth accounting

Growth accounting is a set of theories used in economics to explain economic growth.

The total national income in an economy may be modelled as being explained by various factors. In a simple model, these might be:

  • the total stock of capital (for example, buildings and machinery) available.
  • the size of the labour force
  • the technology available, for example inventions, production and management techniques
Here, an increase in national income must be explained by an increase in the capital available, an increase in the labour force, or an improvement in the technology used.

The levels of national income, the capital stock, and the size of the labour force can all be estimated through widely available economic statistics. A mathematical model can then be constructed to explain the level of national income in terms of labour, capital and a residual. A change in the residual, total factor productivity, represents the change in national income that is not explained by changes in the level of inputs (capital and labour) used. This is normally taken as a measure of the level of technology employed.

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