Measuring "Factor Productivity"

• The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) is NOT Capital.
  Journal of Economic Growth 5(4) 2000. This paper has a very simple point but which raises a fundamental empirical problem for all calculations of "TFP" as a residual. The problem is that there is absolutely no plausible positive theory of government behavior that would allow the inter-temporal aggregation of everything that figures in the national accounts under the category "government investment" into a thing called "capital." Specifically, no one believes as a positive theory that governments act as a profit maximizing investor and equate current investment cost with future increments to output (appropriately valued). It is nonsense to say that if a kleptocrat dictator recorded a billion dollars in the national accounts under "government investment" but really stashed the money in Switzerland that "factor productivity" in the country fell--in fact no factors were created. Since in many developing countries governments account for a large fraction of investment and behave very badly as investors the "TFP" comparisons across countries are meaningless in either levels or changes. (An earlier, working paper version was titled "Mind your p's and q's"--but I could never quite get the Tobin's q analogue to work and so dropped it in favor of homage to Allwyn Young's nice title).