New study reveals major bias in estimating productivity growth
The article explores how estimating the substitution elasticity and total factor productivity can be biased if the type of technical progress is not accurately specified. The study uses a simulation to show that the estimates can vary significantly based on the technical progress assumption. When analyzing the US economy, the researchers find that the substitution elasticity is lower than one, indicating a significant impact of capital on production. This suggests that technical progress plays a crucial role in estimating productivity and supply in an economy.