Summaries of Solow (1957) and Selected Disciples

GODWIN E. UDDIN
http://orcid.org/0000-0003-3055-770X

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Journal Article 1

Solow, R. M. (1957) Technical Change and the Aggregate Production Function, The Review of Economics
and Statistics 39(3): 312 – 320

In efforts to estimate, of the United States economy for the 40 years period 1909 to 1949, the technical
change (A(t)) – a representation of shift(s) in the production function such as slowdowns, speedups, etc.
– using a neutral-stated aggregate production function (see the article for equation 1a; Q = A(t)f(K,L)) –
with assumption that factors are paid their marginal products and of constant returns to scale -, such
form which have the marginal rates of substitution of factor inputs untouched – to show the case of
neutral shifts – and an increase or decrease in output attainable despite the given inputs and same
production function restated in per capita form relative to labour (see the article for equation 2a and 2b)
with output (q) (note: the multiplicative factor, A(t) measures the cumulated effects of shifts over time),
the time series data collated and with some computations done (see the article for Table 1) for onward
utilization include output per unit of labour, capital per unit of labour, and the share of capital.

Meanwhile in recall of his inability to use / the obvious unavailability of adequate Net National Product
(NNP) time series data since the cleanest measure of aggregate output is argued to be real NNP, he
made clear his usage of Gross National Product (GNP) time series data instead, which invariably left with
no choice but to accommodate depreciation in the share of capital. Also, for reasons such as (i) the
problem of measuring government output and (ii) avoiding the overlapping influence of agricultural
value chain on varied business activities, thus eliminating agriculture in bid to ensure or as a step in the
direction of homogeneity, the output (q) time series data was indicated to be of real private non-farm
GNP per man hour, as provided by Kendrick’s work.

The capital time series data he notes, was of the Goldsmith’s estimates (with government, agricultural,
and consumer durables eliminated), and in consideration of the argument that capital-in-use, not
capital-in-place, is what belongs to a production function but also lacking any reliable year-by-year
measure of the utilization of capital, he simply reduced the Goldsmith’s figures by the fraction of the
labour force unemployed in each year, thus assuming that labour and capital always suffer
unemployment to the same percentage1. The time series data for the share of capital he notes also is
“another hodge-podge pieced together from various sources and with ad hoc assumptions (such as,
about 35 percent of non-farm entrepreneurial income is a return to property)”.

For analytical purpose(s) and part of the findings, to have set arbitrarily A(1909) = 1 and using A (t + 1) =
A(t)(1 + ∆A(t)/A(t)), the technical change (A(t)) time series was successively constructed / estimated as
shown (see the article for Table 1 and Chart 3). It was observed that, in a bid to show (the envisaged)
aggregate relationship – a task expressed as consequent to practicing macro-economics - , the trend of
technical change (A(t)) was strongly upward vis-à-vis the increasing values of private non-farm GNP per

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This assumption made here he attests to be “undoubtedly wrong, but probably gets closer to the truth than
making no correction at all”.

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man hour for the period under consideration. Hence, the study was regarded ‘reasonable’, satisfactory
(meeting envisaged aggregate relationships), and that if otherwise would not have written the paper.
Though, sharp dips were recorded in years of World Wars and economic depression.

Overall, the average upward shift for the 40 years period was about 1.5 percent per year, similar to 0.75
percent per year obtained by Valavanis-Vail (1955) for the United States economy using a different and
rather less general method for the period 1869 – 1948, and an increase of about 36 per cent in output-
per-unit-of-input computations of Schmookler (1952)2 for the United States economy for the decades
1904 – 1913 and 1929 – 1938. Also, over the 40 years period, output per man hour was identified to
have approximately doubled, and cumulative upward shift in the production function was about 80
percent (see the article for Chart 2), similar to Fabricant (1954). Thus, in submission and consequent to
the findings, the study earned the right to restate the production function in per capita form (see the
article for equation 3), and such supported with a simple plot of q(t)/A(t)against k(t) (see the article for
Chart 4) and adoption of the Cobb-Douglas case for the production function (see the article for equation
4d) – which gives a distinct impression of diminishing returns.

Valavanis-Vail, S. (1955) An Econometric Model of Growth, U.S.A. 1869 – 1953, American Economic
Review, Papers and Proceedings, XLV (May 1955), 217

Schmookler, J. (1952) The Changing Efficiency of the American Economy, 1869 – 1938, The Review of
Economics and Statistics (August 1952), 226

Fabricant, S. (1954) Economic Progress and Economic Change, 34th Annual Report of the National
Bureau of Economic Research, New York

2
Schmookler’s figures were recounted to include agriculture.

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Journal Article 2

Baier, S. L., Dwyer Jr., G. P., and Tamura, R. (2006) How Important are Capital and Total Factor
Productivity for Economic Growth? Economic Inquiry 44(1): 23 – 49

With focus to examine the relative importance of the growth of physical and human capital and the
growth of total factor productivity (TFP) for output growth using data on 145 countries, in which total
observations was more than 100 years for 23 of these countries, the data set utilized was for per worker
values of output, physical capital and human capital for each country for an average of 58 years. Still,
the data extended backward beyond 1900 for 23 of the 145 countries (i.e. in all, the range of years
considered was 1860 to 2000). Though as expected, the usage of the available data underwent some
computations.

Here, an aggregate production function (see the article for equation 1; Y(t) = A(t)F(K(t),H(t)) – where Y(t),
K(t), and H(t) are output, physical capital, and human capital at t, and the parameter A(t) represents the
level of technology, TFP, at t) which attests the relationship between output and resources was
considered but not of the Cobb-Douglas form. Then, equation 2 (see the article) with capital share (α )
assumption of 0.33 – similar to Gollin (2002) - was used to estimate the growth rate of TFP as well as the
variation in its growth over time and across countries. In other words, the analysis focused on the
growth rates of output and inputs relative to the labour force. Also, the perpetual inventory method was
recounted used to calculate the capital stock per worker, with capital stock at the end of each decade
computed by assuming the investment to income is equal to the average value for available years in that
decade and the annual depreciation rate is 7% and the growth rate of output per year is assumed to be
constant between observations. While, human capital per worker (i.e. education) was computed using
formulas similar to those used by Barro and Lee (1993) (see the article for equation 3).

The estimated contributions of growth of the capital-output ratio, human capital growth and TFP growth
to output growth was provided (see the article for Table A2 in the Appendix), and some of the inferences
thereof include: there are many possible explanations of changes in TFP such as, new physical capital
with zero marginal product, like a ‘useless road’, increases the measured growth of physical capital, but
a marginal product of zero implies that output does not change; also changes in hours worked could
show up as reductions in the growth of TFP; and changes in property rights and economic regime can
result in apparent TFP changes, though such can be interpreted as changes in the difference between
the social and private marginal products; and changes in technology can be reflected in the growth of
physical and human capital. More so, estimates of the growth rates of output per worker for countries
along nine regional categories were presented graphically (see the article for Figure 2), and these similar
to Quah (1996), Pritchett (1997), Jones (1997), and Lucas (2000).

Besides, while the Western countries always have the highest output per worker, other regions seem to
fall behind; whereas a convergence was implied such that once begins in a region, income per worker
tends to catch up to the regions with higher levels of output per worker. Notable world events also – the
fall of communism – was evident associated with falling measured real output per worker in Central and

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Eastern Europe from 1990 to 2000, as similar to decades including World War II, and recent decrease in
real output per worker in Latin America and Sub-Saharan Africa observed was as noted by Rodrick
(1999), Carpena and Santos (2000), Easterly (2001), Evrensel (2002) amidst others. The evolution of
capital stocks per worker, human capital and TFP for the nine regions were illustrated (see the article for
Figures 3, 5 and 6 respectively), but decreases in the measured capital stock per worker and in human
capital were noticed to not be the sources of decreases in output per worker in the Middle East, Latin
America, and or Sub-Saharan Africa. Also, decreases of TFP in Sub-Saharan Africa was attested, not
necessarily attributable to deteriorating technology, but many other factors including decreases in
competition of markets, increases in government regulation, and disruptions in private markets due to
armed conflicts. Over all, TFP growth was concluded somewhat an important part of average output
growth per worker, but the lion’s share of the growth in output per worker can be attributed to growth
of aggregate input per worker3 most especially for Western Countries, Southern Europe, the Newly
Industrialized Countries (NICs)4, and North Africa.

On the other hand, as TFP was reported to not account for a large fraction of the average growth of
output per worker, it was attested as may account for much of the variance across countries as argued
by Rodriguez-Clare (1997) and Easterly and Levine (2001) since the variance of aggregate input growth
explains almost none of the variance of output growth across countries; the variance of TFP growth was
considered to explain virtually all of the variance of output growth across countries.

Evrensel, A. Y. (2002) Effectiveness of IMF-Supported Stabilization Programs in Developing Countries,

Journal of International Money and Finance 21: 565 – 587

Easterly, W. (2001) The Lost Decades: Developing Countries’ Stagnation in Spite of Policy Reform 1980 –
1998, Journal of Economic Growth 6: 135 – 157

Carpena, L. and Santos, M. S. (2000) Economic Growth in Some Latin American and OECD Countries
1960 – 1990, University of Minnesota

Rodrick, D. (1999) Where did all the Growth Go? External Shocks, Social Conflict, and Growth Collapses,
Journal of Economic Growth 4: 385 – 412

Lucas, R. E. Jr. (2000) Some Macroeconomics for the 21st Century, Journal of Economic Perspectives 14:
159 – 168

Pritchett, L. (1997) Divergence, Big Time, Journal of Economic Perspectives 11: 3 – 17

3
Growth in aggregate input relate to physical and human capital weighted by factor shares.
4
NICs include Hong Kong, Japan, Singapore, South Korea, and Taiwan.

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Jones, C. I. (1997) On the Evolution of the World Income Distribution, Journal of Economic Perspectives
11: 19 – 36

Gollin, D. (2002) Getting Income Shares Right, Journal of Political Economy 110: 458 – 474

Quah, D. T. (1996) Twin Peaks: Growth and Convergence in Models of Distribution Dynamics, Economic
Journal 106: 1046 - 1055

Barro, R. J. and Lee, J. (1993) International Comparisons of Educational Attainment, Journal of Monetary
Economics 32: 363 - 394

Easterly, W. and Levine, R. (2001) It’s not Factor Accumulation: Stylized Facts and Economic Growth
Models, World Bank Economic Review 15(2): 177 – 219

Journal Article 3

Mankiw, N. G., Romer, D., and Weil, D. N. (1992) A Contribution to the Empirics of Economic Growth,
Quarterly Journal of Economics 107(2): 407 – 437

Through a start-off considering the ‘object-oriented approach to economic growth’5 put forth by Solow –
a neoclassical growth model with conclusion that accumulation of capital, such as machinery, buildings,
equipments, and the like, is the engine of growth in the short run; that possibilities of long run growth of
output per worker could only be exogenously determined; that policies which increase the share of
resources going to investment will raise the production capacity of the economy (for example, that tax
incentives, or other policies which influence investment, affect only the level of output, not the long-run
rate of growth) – with its underlying assumption of diminishing returns to capital accumulation typically
captured in his Cobb-Douglas form of aggregate production function exhibiting constant returns to
scale, where output per unit of labour (or output per worker) at t, yt, is related to the net capital stock
per unit of labour, kt, as: yt = At (kt)α , and elasticity of output with respect to capital, the parameter α , is
assumed to be less than unity (i.e. one(1)), and the level of technology at time t, the parameter At, being
sometimes referred to as total factor productivity, and marginal product of capital stated as, Әyt /Әkt = α
At / kt1-α, they lend efforts consequent to the endogenous growth theory controversy – starting with
Romer (1986, 1990), and others such as Lucas (1988), Rebelo (1991), and Aghion and Howitt (1992) – to
reconstruct the 1956 “textbook” model (see the article, p. 408).

5
See Dowrick, S. (2004) Ideas and Education: Level or Growth Effects and their Implications for Australia. In T. Ito
and K. R. Andrew (Eds.) Growth and Productivity in East Asia (p. 11), NBER – East Asia Seminar on Economics, Vol.
13, NBER / University of Chicago Press

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Their “augmented Solow model” included human capital as a third factor in the aggregate production
function, alongside capital (or physical capital) and unskilled labour (or labour). They investigated the
relationship between steady-state levels of output and three inputs i.e. capital, unskilled labour, human
capital, using secondary-school enrollment rates as a proxy for the rate of investment in human capital.
They concluded that the factors are of approximately equal importance – that the elasticity of output
with respect to each factor is approximately one-third (see the article, p. 432) – and that together they
account for 80 percent of the observed variation in income levels across some ninety-eight nations.

The data utilized were as constructed by Summers and Heston (1988), and includes real income,
government and private consumption, investment, and population for almost all of the world other than
the centrally planned economies. The data were annual, covers the period 1960 – 1985, and the most
comprehensive sample6 of countries consisting of 98 countries. The parameter, n, was measured as the
average rate of growth of the working-age population, where working age is defined as 15 to 64; the
parameter, s, was measured as the average share of real investment (including government investment)
in real Gross Domestic Product (GDP) and Y / L as real GDP in 1985 divided by the working-age
population in that year.

Romer, P. M. (1986) Increasing Returns and Long-run Growth, Journal of Political Economy 94(5): 1002 –
1037

Romer, P. M. (1990) Endogenous Technological Change, Journal of Political Economy 98(5): 71 – 102

Lucas, R. E. Jr. (1988) On the Mechanics of Economic Development, Journal of Monetary Economics
22(1): 3 – 42

Rebelo, S. (1991) Long-run Policy Analysis and Long-run Growth, Journal of Political Economy 99(3): 500
– 521

Aghion, P. and Howitt, P. (1992) A Model of Growth through Creative Destruction, Econometrica 60
(March): 323 – 351

Summers, R. and Heston, A. (1988) A New Set of International Comparisons of Real Product and Price
Levels Estimates for 130 Countries, 1950 – 1985, Review of Income and Wealth 34: 1 – 26

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Three samples of countries (data set(s)) were utilized (see the article for details, p. 413).

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Journal Article 4

Easterly, W. and Levine, R. (2001) It’s not Factor Accumulation: Stylized Facts and Economic Growth
Models, World Bank Economic Review 15(2): 177 – 219

In a bid to reaffirm previous studies thus far on economic growth and make (several) new contributions,
they sought to answer two questions: what accounts for cross-country growth difference?, and what
accounts for growth differences over time? (see the article, p. 180), using literature and some estimation
with panel data set on cross section of countries.

More so, besides their postulation of five stylized facts7 (see the article, pp. 179 – 180) and reference to
the growth accounting procedure using the Cobb-Douglas aggregate production function (see the article,
for equation 1 and others following), they reiterated the obvious of factor accumulation to cocur over
time and closely tied to economic success while total factor productivity (TFP) frequently accounts for
the bulk of growth in output per worker, and growth in output per worker may not occur in some years
in some countries. The countries that experiences growth booms and or crashes were regarded as
countries with “rollercoaster ride (of growth)”. The study utilized the Penn World Table (PWT) data set
for 73 countries for years 1960 to 1995, and adopted, besides other considerations, a generalized
method of moments (GMM) dynamic panel estimator to examine the relationship between (national)
policy and economic growth.

However, they also highlight the several limitations of growth accounting (procedure) – starting with
Solow (1956) and others (see the article, from p. 187), thence the emphasis on level accounting similar
to Mankiw, Romer and Weil (1992) and its difference (i.e. growth accounting) from causality. In addition,
they proffered that the stylized fact 4 – of factor migration from poor to rich areas, like for example,
brain-drain – confirms the poverty trap models established in some previous studies.

Solow, R. M. (1957) Technical Change and the Aggregate Production Function, The Review of Economics
and Statistics 39(3): 312 – 320

Mankiw, N. G., Romer, D., and Weil, D. N. (1992) A Contribution to the Empirics of Economic Growth,
Quarterly Journal of Economics 107(2): 407 – 437

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In summary: Stylized fact 1 – Easterly and Levine, 2001 – Total Factor Productivity (TFP) (as reason for variation in
countries’ output per worker growth in comparison); Stylized fact 2 – Prittchett, 1997 – (that there is growing
output per worker) divergence (among world economies); Stylized fact 3 – Easterly and others, 1993 – Persistence
of factor accumulation, not growth; Stylized fact 4 – Mellinger, Sachs and Gallup, 1999 – Factor flows (reasons for
regional factor-attractiveness); and Stylized fact 5 – Mankiw, Romer and Weil, 1992 – National policies (for long
run growth).

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Journal Article 5

Kuboniwa, M. (2011) The Russian Growth Path and TFP Changes in Light of Estimation of the Production
Function Using Quarterly Data, Post-Communist Economies 23(3): 311 – 325

Presented in his article were estimations of a Cobb-Douglas production function8 (see the article, p. 312
and following) for the Russian economy using quarterly data for the “favourable” period 1998Q3 –
2008Q2 and the period 1995Q1 – 2010Q29 as well, in order to mitigate the sensitivity problem of
production function estimation(s) to annual data.

Thus, compiling the baseline data on capital and labour10 adjusted for utilization11 and on assumption of
the depreciation rate per annum as 1.8% (a quarterly rate of 0.45%), he showed estimations of the
coefficients (the capital distribution ratio12 and total factor productivity (TFP)) of the production function
(before and after inputs adjustments), and inferences thereof were that TFP is the major source of
growth (by more than two-thirds before adjustment; and more than half of growth after adjustment),
followed by capital contribution (with the remaining one-third before adjustment; and two-fifth of
growth after adjustment).

Notably, the article was “a (research) report on simple exercises of ordinary least squares (OLS)
regressions for the Russian economy”, and estimations for the period 1995Q1 – 2010Q2 revealed the
impact of the 1998 financial crisis and the 2008-09 Lehman shock coupled with the adverse oil shock.
However, in conclusion the attestation was made that an analysis of an economy without any Gross
Domestic Product (GDP) growth cannot be meaningful through neoclassical growth models that assume
the steady growth of an economy in the long run, and the assumption on the utilization rates for
industry as proxies for the overall economy was suggested to be relaxed since the Russian Economic
Barometer (REB) utilization rate do not enable the provision / availability of the best data set for
estimation of the production function. Part of the findings though, was in agreement with Wilson and
Purushothaman (2003).

Wilson, D. and Purushothaman, R. (2003) Dreaming with BRICS: The Path to 2050, Global Economics
Paper 99, Goldman Sachs, New York

8
The Cobb-Douglas production function employed was stated to be such with steady exogenous technical
progress.
9
The official quarterly Gross Domestic Product (GDP) data for Russia were available only from 1995 onwards.
10
The quarterly data for labour non-adjusted were of the “economically active population” which includes both
employed and unemployed persons 15 – 72 years old.
11
The utilization rates of capital and labour were established using Russian Economic Barometer (REB) industrial
utilization rates of capital and labour as of 2010 as proxies for the overall utilization rates of capital and labour.
12
Contrary to the conventional adoption of capital distribution ratio (capital share) of 30% or a rough estimate of
the actual average capital share of 50% derived from the Russian national accounts.