THE TYRANNY OF THE IDENTITY: GROWTH ACCOUNTING REVISITED Jesus Felipe Economics and Research Department Asian Development Bank Manila (Philippines) e-mail: jfelipe@adb.org JSL McCombie Centre for Economic and Public Policy University of Cambridge Cambridge (UK) e-mail: jslm2@hermes.cam.ac.uk September 8, 2005 Abstract: This paper shows, first, that the recent proposal by Barro (1999) and Hsieh (1999, 2002) to perform growth accounting by directly differentiating the NIPA identity is simply an exercise in the manipulation of an accounting identity without any foundation. Second, simulations show that growth accounting performed with aggregate data is not equivalent to the true rate of technological progress implied by the micro data. Third, we conclude that the rate of total factor productivity growth usually estimated is simply a measure of distributional income. JEL Classification: O11, O16, O47, O53 We are grateful to Rana Hasan, Franklin M. Fisher and the participants in the Conference on “Understanding Economic Growth: New Directions in Theory and Policy”, Cambridge, U.K., September 1-3, 2005, for their comments and suggestions. The usual disclaimer applies. This paper represents the views of the authors and does not represent those of the Asian Development Bank, its Executive Directors, or the countries that they represent.