DEFINITION of 'Solow Residual'

A measure of the empirical productivity growth in an industry or macroeconomy over comparable time periods, such as from year to year and decade to decade. The measure is deemed residual because its growth is not explained by capital accumulation or any increase in labor.

BREAKING DOWN 'Solow Residual'

The Solow residual originated through the works of Robert M. Solow, an American economist and recipient of the John Bates Clark Medal (1961) and the Nobel Memorial Prize in Economic Sciences (1987).The Solow residual is a value that measures changes in productivity growth in a Solow growth model, which describes an entire economy's production function. Productivity growth refers to rising output occurring with constant labor and capital input.

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