DEFINITION of Growth Accounting

Growth accounting is a method of measuring economic growth where the specific factor, or factors, contributed to an economy's growth are identified. Factors that are measured are often contributions from labor, contributions from invested capital, and contributions from technological advancements. The concept of growth accounting was introduced by Robert Solow in the late 1950s.

BREAKING DOWN Growth Accounting

Growth accounting allows one to examine the different aspects of growth: production per worker, technology, and savings, to determine which factor most likely created the increase in real GDP. Robert Solow was the first to introduce the concept of technology having an impact on GDP growth in the late 1950s. His concept, often referred to as the Solow residual, brought technological advancement onto the stage as a contributor to GDP growth in addition to labor and capital investments. His idea was that when technological capability grows, it allows more units to be produced per each labor and capital input, thus multiplying growth.