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Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences

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Author Info
Cummins, Jason G
Violante, Giovanni L

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Abstract

By extrapolating Gordon’s (1990) measures of the quality-bias in the official price indexes, we construct quality-adjusted price indexes for 24 types of equipment and software (E&S) from 1947 to 2000 and use them to measure technical change at the aggregate and at the industry level. Technological improvement in E&S accounts for an important fraction of postwar GDP growth and plays a key role in the productivity resurgence of the 1990s. Driving this finding is 4% annual growth in the quality of E&S in the post war period and more than 6% annual growth in the 1990s. The acceleration in the 1990s occurred in every industry, consistent with the idea that information technology represents a general purpose technology. Furthermore, we measure for the aggregate economy and different sectors the ‘technological gap’: how much more productive new machines are compared to the average machine. We show that the technological gap explains the dynamics of investment in new technologies and the returns to human capital, consistent with Nelson and Phelps’ (1966) conjecture. Since the technological gap continues to increase – it more than doubled in the past 20 years – our evidence supports the view that at least some of the recent increase in productivity growth is sustainable.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3584.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3584

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Related research
Keywords: growth accounting quality-adjusted prices skill premium

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2006. "Technology-policy interaction in frictional labor markets," Working Paper 06-10, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  2. Andreas Hornstein & Per Krussell & Giovanni L. Violante, 2002. "Vintage capital as an origin of inequalities," Working Paper 02-02, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  3. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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