Zvi Griliches was a modern master of empirical economics. In
this short book, he recounts what he and others have learned about
the sources of economic growth. This book conveys the way he
tackled research problems. For Griliches, economic theorizing
without measurement is merely the fashioning of parables, but
measurement without theory is blind. Judgment enables one to strike
the right balance.
The book begins with economists' first attempts to measure
productivity growth systematically in the 1930s. In the mid-1950s
these efforts culminated in a startling puzzle. The growth of
measured inputs like labor and capital explained only a fraction of
the growth of national output. Economists called this phenomenon
"efficiency" or "technical change" or "the residual." However,
Griliches observes that the most accurate name was a "measure of
our ignorance." What explained the rest of economic growth quickly
became one of the most important questions in economics.
Over the next thirty years, Griliches and his colleagues and
students looked for various components of the residual in education
(the formation of human capital), investment (the formation of
physical capital), and research and development. In 1973, after the
oil price shocks, productivity growth slowed and the residual
almost disappeared. Since the shocks were a short-term phenomenon,
they could not account for the slowdown. A main focus of this book
is therefore the puzzle of the productivity slowdown and how to
date it and how to explain it.
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