NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Invariance Properties of Solow's Productivity Residual

Robert E. Hall

NBER Working Paper No. 3034 (Also Reprint No. r1625)*
Issued in October 1991
NBER Program(s):   EFG

In 1957, Robert Solow published a paper that provided the theoretical foundation

for almost all subsequent work on productivity measurement.

Although most applications of Solow's method have measured trends over

fairly long time periods, the method also has important uses at higher

frequencies. Under constant returns to scale and competition, the Solow

residual measures the pure shift of the production function. Shifts in product

demand and factor supplies should have no effect on the residual. Tests of

this invariance property show that it fails in a great many industries.

Though other explanations may deserve some weight, it appears that the

leading cause of the failure of invariance is increasing returns and market

power. The empirical findings give some support to the theory of monopolistic

competition.

*Published: Growth/Productivity/Unemployment, edited by Peter Diamond, pp. 71-112. Cambridge, MA: MIT Press, 1990.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, a site with your domain name in ".GOV", or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

 
Publications
Activities
Meetings
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org