What is Growth Accounting

This chapter uses a nonparametric, international production-frontier approach with a focus on euro area growth accounting. The authors uncover two robust findings for the period since 1980. First, estimated euro area efficiency scores lie much below the world production frontier (gap mostly in the range of 10% to 20%), suggesting the need for structural reform efforts to enhance resource use. Second, the use of human capital series points to a significant effect on euro area labour productivity—highlighting the positive macroeconomic return to education—while entailing a considerable reduction in the estimates of technological progress. Third, they fail to detect significant changes in cross-country distributions of labour productivity both before and after 1995. The only exception concerns the shift in the labour productivity distribution between 1980 and 1995—attributable to the role of physical capital deepening—when they employ the Barro and Lee human capital measure together with World Penn Tables data for the full set of countries, and this only at the 10% significance level.