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Pure technology gaps and production predictability

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  • Bednarek, Ziemowit

Abstract

An average machine lags in terms of productivity and technological advancement behind a cutting-edge machine. This lag was first defined by Cummins and Violante (2002) as the technology gap. Using the vector error correction model, I show that the technology gap is cointegrated with human capital factors, and then decompose it into a long-run trend and a transitory mean-reverting component, which I term as the pure technology gap. I show that the pure technology gap has a predictive power for the aggregate production. Intuitively, a high pure technology gap acts as an economic shock that increases production in the long term due to a higher future productivity level.

Suggested Citation

  • Bednarek, Ziemowit, 2016. "Pure technology gaps and production predictability," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 39-50.
    • Handle: RePEc:eee:quaeco:v:59:y:2016:i:c:p:39-50
    DOI: 10.1016/j.qref.2015.02.009
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