Growth Accounting
Growth accounting decomposes the growth of output into contributions from capital, labor, and total factor productivity (the Solow residual).
Starting from the aggregate production function, growth accounting attributes a country's output growth to growth in capital, growth in labor (each weighted by its share of income), and a leftover 'Solow residual' attributed to technological progress and efficiency gains. The residual captures everything not explained by measured inputs and is treated as total factor productivity (TFP) growth. Empirically, much of long-run growth in output per worker comes from TFP rather than sheer input accumulation, highlighting the role of innovation. It is the standard framework for explaining why some economies grow faster than others.