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Growth Accounting When Technical Change is Embodied in Capital

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  • Charles R. Hulten
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    Abstract

    Many technological innovations are introduced through improvements in the design of new investment goods, thus raising the possibility that capital-embodied technical change may be a significant source of total factor productivity growth. There are, however, no systematic estimates of the size of the embodiment effect. This paper attempts to fill this gap by merging the estimates of quality change obtained from the price literature on quality change with a version of the conventional sources of growth model which allows for both embodied and disembodied technical change. This resulting estimates suggest that as much as 20 percent of the total factor productivity in growth U.S. manufacturing industry over the period 1949-83 is due to the embodiment effect. It is also found that for the equipment used in U.S. manufacturing, best practice technology may be as much as 23 percent above the average level of technical efficiency.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3971.

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    Date of creation: Jan 1992
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    Publication status: published as American Economic Review, Vol. 82, no. 4 (1992): 964-980.
    Handle: RePEc:nbr:nberwo:3971

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    1. Gregory, R G & James, Denis W, 1973. "Do New Factories Embody Best Practice Technology?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 83(332), pages 1133-55, December.
    2. Jorgenson, Dale W., 1966. "The Embodiment Hypothesis," Scholarly Articles 3403063, Harvard University Department of Economics.
    3. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
    4. Michael Gort & Raford Boddy, 1967. "Vintage Effects and the Time Path of Investment in Production Relations," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 395-430 National Bureau of Economic Research, Inc.
    5. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, Elsevier, vol. 33(1-2), pages 7-29.
    6. Baily, Martin & Gordon, Robert J, 1989. "Measurement Issues, the Productivity Slowdown and the Explosion of Computer Power," CEPR Discussion Papers, C.E.P.R. Discussion Papers 305, C.E.P.R. Discussion Papers.
    7. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, 01-2013.
    8. Dale W. Jorgenson, 1966. "The Embodiment Hypothesis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 74, pages 1.
    9. Evsey D. Domar, 1963. "Total Productivity and the Quality of Capital," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 71, pages 586.
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