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Accounting for Productivity Growth When Technical Change is Biased

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  • James Bessen

    (Research on Innovation, Boston University School of Law)

Abstract

Solow (1957) decomposed labor productivity growth into two components that are independent under Hicks neutrality: input growth and the residual, representing technical change. However, when technical change is Hicks biased, input growth is no longer independent of technical change, leading to ambiguous interpretation. Using Solow’s model, I decompose output per worker into globally independent sources. Adding a simple calculation to Solow’s framework, I show that technical bias directly contributes to labor productivity growth above what is captured in the Solow residual. This contribution is sometimes large, leading to rates of total technical change that substantially exceed the Solow residual.

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  • James Bessen, 2008. "Accounting for Productivity Growth When Technical Change is Biased," Working Papers 0802, Research on Innovation.
    • Handle: RePEc:roi:wpaper:0802
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    Cited by:

    1. Marijn Verschelde & Michel Dumont & Bruno Merlevede & Glenn Rayp, 2014. "A constrained nonparametric regression analysis of factor-biased technical change and TFP growth at the firm level," Working Paper Research 266, National Bank of Belgium.
    2. James Bessen, 2009. "More Machines, Better Machines...Or Better Workers?," Working Papers 0803, Research on Innovation.

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    More about this item

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • N61 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: Pre-1913
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913

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