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Ideas, idea processing, and TFP growth in the US: 1899 to 2019

Author

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  • James, Kevin R.
  • Kotak, Akshay
  • Tsomocos, Dimitri

Abstract

Innovativity – an economy's ability to produce the innovations that drive total factor productivity (TFP) growth – requires both ideas and the ability to process those ideas into new products and/or techniques. We model innovativity as a function of endogenous idea processing capability subject to an exogenous idea supply constraint and derive an empirical measure of innovativity that is independent of the TFP data itself. Using exogenous shocks and theoretical restrictions, we establish that: i) innovativity predicts the evolution of average TFP growth; ii) idea processing capability is the binding constraint on innovativity; and iii) average TFP growth declined after 1970 due to a constraints on idea processing capability, not idea supply.

Suggested Citation

  • James, Kevin R. & Kotak, Akshay & Tsomocos, Dimitri, 2022. "Ideas, idea processing, and TFP growth in the US: 1899 to 2019," LSE Research Online Documents on Economics 116448, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:116448
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    More about this item

    Keywords

    innovation; financial market effectiveness; endogenous growth; total factor productivity;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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