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Investment-specific technical change in the US (1947-2000): measurement and macroeconomics consequences

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Author Info
Jason G. Cummins
Giovanni L. Violante

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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 percent annual growth in the quality of E&S in the postwar period and more than 6 percent 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 Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2002-10.

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Date of creation: 2002
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Handle: RePEc:fip:fedgfe:2002-10

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Keywords: Investments ; Technology;

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Full references

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(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. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2008. "Investment Shocks and Business Cycles," CEPR Discussion Papers 6739, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Ornaghi, Carmine & Castiglionesi, Fabio, 2009. "On the determinants of TFP Growth: Evidence from Spanish Manufacturing Firms," Discussion Paper Series In Economics And Econometrics 0912, Economics Division, School of Social Sciences, University of Southampton. [Downloadable!]
  3. Diego Martínez & Jesús Rodríguez-López & José L. Torres, 2008. "Productivity growth and technological change in Europe and the U.S," Working Papers 2008-10, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center. [Downloadable!]
  4. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Max Floetotto & Nir Jaimovich & Seth Pruitt, 2009. "Markup variation and endogenous fluctuations in the price of investment goods," International Finance Discussion Papers 968, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Guido Cozzi & Giammario Impullitti, 2008. "Government spending composition, technical change and wage inequality," Working Papers 2009_02, Department of Economics, University of Glasgow. [Downloadable!]
  9. Musso, Patrick & Aglietta, Michel & Borgy, Vladimir & Juillard, Michel & Le Garrec, Gilles & Fitoussi, Jean-Paul & Le Cacheux, Jacques & Creel, Jérôme & Laurent, Eloi & Gaffard, Jean-Luc & Baudchon,, 2005. "Potential Growth in the EU : Prospects from Technical Progress and Eastern Enlargment," Open Access publications from Sciences Po info:hdl:2441/2500, Sciences Po. [Downloadable!]
  10. 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!]
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  11. Alain Gabler & Omar Licandro, 2009. "Firm Dynamics Support the Importance of the Embodied Question," Economics Working Papers ECO2009/35, European University Institute. [Downloadable!]
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  12. Claudio Michelacci & David López-Salido, 2003. "Technology shocks and job flows," Banco de España Working Papers 0308, Banco de España. [Downloadable!]
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  13. Yasser Abdih & Frederick L. Joutz, 2008. "The Impact of Public Capital, Human Capital, and Knowledge on Aggregate Output," IMF Working Papers 08/218, International Monetary Fund. [Downloadable!]
  14. Jesús Rodríguez López & José Luis Torres Chacón, 2009. "Technological sources of productivity growth in Japan, the U.S. and Germany," Working Papers 09.09, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
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  16. Kredler, Matthias, 2008. "Experience vs. Obsolescence: A Vintage-Human-Capital Model," MPRA Paper 10200, University Library of Munich, Germany, revised 17 Oct 2009. [Downloadable!]
  17. Jesús Rodríguez López, 2010. "Growth, fluctuations and technology in the U.S. post-war economy," Working Papers 10.01, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
  18. Tatsuyoshi Miyakoshi & Pekka Ilmakunnas, 2009. "What decreases the TFP ? The aging labor and ICT imbalance," Discussion Papers in Economics and Business 09-03, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
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