Growth accounting method

The name of growth accounting method comes from that annual changes in value added are broken into growth components, whereby it is possible to examine from which factors growth has derived. Let’s assume that from year t to year t-1, value added has grown by five per cent (logarithmic % changes). This growth can be broken into components: the share of growth caused by the growth in the amount of capital, the share due to growth in labour input and the share resulting from improved multi-factor productivity. The components are summed to the change in value added, that is, if in the example above we assume that the effect of capital is 0.7 per cent and that of labour force 1.3 per cent, the effect of multi-factor productivity is three per cent.
Primary inputs – capital and labour – can be further broken into sub-items. In productivity calculations the contributions have been separately calculated for ICT and RD assets, machinery and equipment, residential buildings and other capital resources. The effects of hours worked and the contribution of labour composition are separated from labour input.
The most precise productivity survey calculations are made for 63 industries. Value added, labour productivity, contribution of capital and labour force to productivity and multifactor productivity are calculated for each industry. After this, industry-specific data are aggregated with value added weights to less detailed levels and afterwards to the level of the whole economy.