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AbstractWhat effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Heckscher‐Ohlin‐Samuelson (HOS), two‐good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions. This follows from a continuous‐time analysis using Divisia index numbers. However in the case where imports are intermediate inputs and competition is imperfect, an improvement in the terms of trade does raise GDP: the size of the effect depends on the size of the markup of price over marginal revenue. I argue that the continuous time Divisia approach is the right framework for national income accounting, even though it can only be implemented approximately in practice. If the aim is to find the best approximation to the Divisia index, then the chained Fisher index (as used in the US and Canadian national accounts) or the chained Törnqvist are better approximations than is the chained Laspeyres (as used in Europe).

If official figures overstated the growth of banking output in the UK in the recent boom, does this mean that GDP growth was overstated too? The answer is no. It is truer to say that if banking output was overstated then the output of some other industry or industries must have been understated, leaving GDP relatively unaffected. The reason is that the Office for National Statistics measures the real growth of GDP primarily from the expenditure side. And from the expenditure side most of the problematic part of banking output drops out since it constitutes intermediate consumption not final expenditure. Consequently, the effect of any mismeasurement of banking output on GDP growth in the boom of 2000–7 is likely to have been small; GDP growth might have been overstated by about 0.1 per cent per annum.

The Boskin Commission has claimed that the US Consumer Price Index (CPI) is currently overestimating the true rate of inflation by 1.1 percentage points per annum. This article assesses the evidence for this conclusion and its implications for the measurement of past and future US economic performance. If Boskin is right, US GDP growth in the period 1970 to 1996 has been underestimated by about 0.9 per cent per annum. Some at least of the methodological changes recommended by Boskin will probably be adopted. As a result US GDP growth will appear to rise, eventually by as much as 0.5 per cent per annum, even though no genuine improvement in economic performance has actually occurred. Boskin has implications for the UK too. Recent evidence suggests that use of a formula recommended by Boskin for averaging price quotes together can by itself reduce UK inflation by 0.4 per cent per annum.

This paper argues that the greater part of economic growth can be accounted for by the accumulation of human and physical capital. The role of externalities is relatively small. This view is defended by reviewing the most sophisticated growth accounting studies and also by presenting some new evidence on the growth of total factor productivity in 53 countries over the period 1965 to 1990.

Two institutions have retarded UK productivity growth in the post-war period: industrial relations and education. The failings of both were largely addressed in the 1980s. The productivity improvement of the 1980s was genuine and was largely due to the reduction in union power brought about by the trade union legislation of the 1980s. The 1980s and 1990s have also seen large falls in the proportion of the labour force which is unqualified and rises in enrolment rates in further and higher education, changes which tend to increase long-run growth. But two factors have obscured the extent o f the improvement. First, the whole climate for economic growth is less favourable than it was in the so-called Golden Age prior to the first oil shock in 1973. Second, UK macroeconomic policy compares poorly with other OECD countries: booms have been shorter and recessions longer, so that microeconomic success has been masked by macroeconomic failure.

Official price indexes may overstate (or understate) inflation for a number of reasons. These include substitution bias, outlet bias, failure to allow properly for quality change, and failure to allow for new goods. This note finds that substitution and outlet bias are probably not significant sources of error in the UK. The other two sources most probably do lead to significant overstatement, but the size of the upward bias cannot at the moment be quantified.'Since, with technological advance, the quality of products tends to improve, the estimates of consumers' expenditure tend to understate the true growth in standards of consumption'. (CSO a 985, p. 72).'The Producer Price Indices … make some allowance for changes in models and specifications when these can be identified in terms of changes of cost or in technical performance…. [Allowances for quality change] are necessarily somewhat rough and seldom fully satisfactory'. (CSO 1985, p. 40, emphasis added).

ABSTRACTMaurice Scott has argued that the neoclassical production function and growth accounting are fundamentally flawed as tools for understanding the growth process. If the role of capital were correctly evaluated, then (he argues) the famous 'residual' of growth accounting would disappear. Contrary to these claims, this paper seeks to show that growth accounting gives correct answers to interesting questions, even when all technical progress is embodied in new capital goods and even when depreciation is entirely due to obsolescence.

What accounts for the productivity improvement experienced in manufacturing since 1979? Answers to this question are sought from a regression analysis of 93 manufacturing industries over the period 1971-86. The main findings are that when other influences, such as raw material prices and the shock of the 1980-1 recession, are eliminated, there has been an improvement in the 1980s in the growth rate of productivity whose impact effect averaged 4 per cent per annum. Between a quarter and a half of this is attributable to a decline in the disadvantages of unionisation.