A decomposition of economic growth decompositions

What is it about?

This paper critically compares the ability of all three decomposition techniques that explain economic growth and its variation between regions and nations. Old time shift-and-share analysis (S&S) presumes that industry mix and regional competitiveness are all important. Structural decomposition analysis (SDA) presumes that final demand growth and input-output coefficient changes are all that matter. Growth accounting (GA) presumes the same for the growth of production factors and technological progress. This paper concludes that an econometric estimation of a GA equation without its residual factor productivity growth component, but with industry mix and demand components from S&Ss and SDAs, respectively, offers the best approach to explain longer term economic growth and variations therein.

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Why is it important?

It is a big warning against the misuse of shift&share analysis, input-output analysis and growth accounting.