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Micro data and macro technology

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Author Info

  • Ezra Oberfield
  • Devesh Raval

Abstract

We study the implications of microeconomic heterogeneity for aggregate technology, showing that the aggregate elasticity of substitution between capital and labor can be expressed as a simple function of plant level structural parameters and sufficient statistics for plant heterogeneity. This allows for a new approach to estimating the aggregate elasticity using microeconomic data and allows us to examine how the aggregate elasticity varies over time or across countries. We then use plant level data from the Census of Manufactures to construct an aggregate elasticity of substitution for the manufacturing sector, and estimate an aggregate elasticity of approximately 0.72 in 1987. We find that the aggregate elasticity has risen over time in the US and is higher in less developed countries. These differences are quantitatively important; our estimates imply that a change in the interest rate has a 50 percent larger impact on India than the US. Finally, we measure the bias of aggregate technical change using our estimates of the aggregate elasticity, and find that the bias of technical change has increased in recent years.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2012-11.

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Date of creation: 2012
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Handle: RePEc:fip:fedhwp:wp-2012-11

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Related research

Keywords: Manufacturing industries ; Technology - Economic aspects;

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References

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  1. Daniel Aaronson & Daniel Sullivan, 2002. "Growth in worker quality," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
  2. Buera, Francisco J. & Kaboski, Joseph P., 2012. "Scale and the origins of structural change," Journal of Economic Theory, Elsevier, vol. 147(2), pages 684-712.
  3. Chamley, Christophe, 1981. "The Welfare Cost of Capital Income Taxation in a Growing Economy," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 468-96, June.
  4. Erzo G. J. Luttmer, 2012. "Growth with a Fixed Factor," Working Papers 2012-1, University of Minnesota, Department of Economics.
  5. Miguel A. Le�n-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-57, September.
  6. David Greenstreet, 2007. "Exploiting Sequential Learning to Estimate Establishment-Level Productivity Dynamics and Decision Rules," Economics Series Working Papers 345, University of Oxford, Department of Economics.
  7. John Fernald, 2012. "A quarterly, utilization-adjusted series on total factor productivity," Working Paper Series 2012-19, Federal Reserve Bank of San Francisco.
  8. Thomas J. Holmes & John J. Stevens, 2010. "An Alternative Theory of the Plant Size Distribution with an Application to Trade," Working Papers 10-10, Center for Economic Studies, U.S. Census Bureau.
  9. Andrew B. Abel, 1986. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," NBER Working Papers 1549, National Bureau of Economic Research, Inc.
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Cited by:
  1. Baccianti, Claudio, 2013. "Estimation of sectoral elasticities of substitution along the international technology frontier," ZEW Discussion Papers 13-092, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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