Output, Capital, and Labor in the Short, and Long-Run* Daniel Levy Department of Economics Emory University Atlanta, GA 30322-2240 Tel: (404) 727-2941 Fax: (404) 727-4639 econdl@unix.cc.emory.edu Last Revision: September 27, 1993 JEL Codes: O47, E22, E24, E32 Key Words: Growth Accounting, Capital Investment, Output Fluctuation, Employment, Business Cycles and Aggregate Fluctuation, Frequency Domain Analysis, Spectrum and Cross-Spectrum, Coherence, Phase Shift, Gain, Zero-Frequency, Capital and Labor Elasticity of Output, Short-Run, Long-Run, Capital's and Labor's Share in Output, Accelerator Model of Investment Using a new series of capital stock and frequency domain analysis, this paper provides new empirical evidence on the relative importance of capital and labor in the determination of output in the short and long-run. Contrary to the common practice in the traditional growth accounting literature of assigning weights of 0.3 and 0.7 to capital and labor inputs respectively, the evidence presented here suggests that capital is a far more important factor than labor for determination of output at and near the zero frequency band. Furthermore, I show that the zero-frequency labor elasticity of output may well be close to zero, or even zero. Additional findings reported here support the traditional accelerator model of investment as a good description of the long-run investment process. * I am grateful to Shomu Banerjee, Bob Carpenter, Paul Romer, Mark Watson, and the anonymous referee for reading an earlier version of this manuscript and providing detailed comments and suggestions. I also thank Martin J. Bailey, Mark Bergen, Hashem Dezhbakhsh, Hal Fried, Maxwell Fry, Amihai Glazer, Jinook Jeong, Roger Kormendi, David Lilien, Giovanna Mossetti, Will Roberds, and Shelton Schmidt as well as the seminar participants at Emory University for useful comments and suggestions. Comments received from Mark Bergen, Kevin Denny, and David Smyth on my 1990 Economics Letters paper led me to the ideas presented here. All errors are mine. Forthcoming Southern Economic Journal, 1994