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Biased Technical Change, Intermediate Goods and Total Factor Productivity

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  • Alessio Moro

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Abstract

Biased technical change can be defined as changes that affect the elasticity of output with respect to inputs. In this paper, I analyze the effect of biased technical change on total factor productivity (TFP). I construct an input-output economy in which firms produce gross output using capital, labor and intermediate goods. In equilibrium, biased technical change appears as an explicit part of TFP in the value added aggregate production function, where the latter is obtained through the aggregation of individual firms optimal decisions. A larger elasticity of gross output with respect to intermediates implies a smaller TFP level. I use the model to quantify the impact of biased technical change for measured TFP growth in Italy. The exercise shows that biased technical change can account for the productivity slowdown observed in Italy from 1994 to 2004.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we076034.

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Date of creation: Jan 2007
Date of revision: Jun 2008
Handle: RePEc:cte:werepe:we076034

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Keywords: Total factor productivity growth; Intermediate goods; Productivity slowdown;

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  1. Rui Castro & Gian Luca Clementi & Glenn Macdonald, 2009. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 529-561.
  2. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  3. Wolff, Edward N, 1996. "The Productivity Slowdown: The Culprit at Last? Follow-Up on Hulten and Wolff," American Economic Review, American Economic Association, vol. 86(5), pages 1239-52, December.
  4. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-77, November.
  5. Berthold Herrendorf & Arilton Teixeira, . "How Barriers to International Trade Affect TFP," Working Papers 2167724, Department of Economics, W. P. Carey School of Business, Arizona State University.
  6. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
  7. Richard Rogerson & Diego Restuccia, 2004. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," 2004 Meeting Papers 69, Society for Economic Dynamics.
  8. Bruno, Michael, 1984. "Raw Materials, Profits, and the Productivity Slowdown," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 1-29, February.
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Cited by:
  1. Thomas Strobel, 2013. "Embodied Technology Diffusionand Sectoral ProductivityEvidence for 12 OECD Countries," Ifo Working Paper Series Ifo Working Paper No. 156, Ifo Institute for Economic Research at the University of Munich.
  2. Jan Grobovšek, 2011. "Development Accounting with Intermediate Goods," Working Papers 2011.85, Fondazione Eni Enrico Mattei.
  3. Jan Grobovsek (University of Edinburgh), 2013. "Development Accounting with Intermediate Goods," ESE Discussion Papers 223, Edinburgh School of Economics, University of Edinburgh.
  4. Manoj Atolia & Ryan Chahrour, 2013. "Intersectoral Linkages, Diverse Information, and Aggregate Dynamics in a Neoclassical Model," Boston College Working Papers in Economics 832, Boston College Department of Economics.

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