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Technological Progress and Sectoral Shares

Author

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  • Gamal Atallah

    (Department of Economics, University of Ottawa, Ottawa, ON)

  • Aggey Semenov

    (Department of Economics, University of Ottawa, Ottawa, ON)

Abstract

This paper studies the effect of differences in the rate of technological progress between sectors on the relative sizes of those sectors in terms of revenues. There are two sectors: a stagnant sector, where productivity does not change over time, and a progressive sector, where costs decrease over time due to exogenous technological progress. We consider a conjectural variation approach to competition in the progressive sector which encompasses perfect competition, Cournot oligopoly and monopoly. The main result of the paper is that the share of the stagnant sector increases over time when demand in the progressive sector is inelastic. Under perfect competition, when initial production costs in the progressive sector are sufficiently low (so that demand is inelastic), the share of the stagnant sector rises over time. Whereas, when initial production costs are sufficiently high (so that demand is elastic), the relative size of the stagnant sector is U-shaped with respect to time. Under monopoly, the share of the stagnant sector always decreases over time. However, the decline in that share is much more rapid the higher are initial costs in the progressive sector. The interaction of market structure and price elasticity (or initial costs) determines how the relative sizes of sectors differing in productivity growth evolve over time. The relationship with the cost disease literature is discussed.

Suggested Citation

  • Gamal Atallah & Aggey Semenov, 2016. "Technological Progress and Sectoral Shares," Working Papers 1610e, University of Ottawa, Department of Economics.
    • Handle: RePEc:ott:wpaper:1610e
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    References listed on IDEAS

    as
    1. Mary O’Mahony & Philip Stevens, 2009. "Output and productivity growth in the education sector: comparisons for the US and UK," Journal of Productivity Analysis, Springer, vol. 31(3), pages 177-194, June.
    2. Gamal Atallah & Aggey Semenov, 2018. "Technological Progress and Sectoral Shares," Australian Economic Papers, Wiley Blackwell, vol. 57(2), pages 142-153, June.
    3. Ehud Kalai & William Stanford, 1982. "Duopoly, Conjectural Variations and Supergames," Discussion Papers 525, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Allan Crawford, 2002. "Trends in Productivity Growth in Canada," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 19-32.
    5. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    6. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
    7. Cabral, Luis M. B., 1995. "Conjectural variations as a reduced form," Economics Letters, Elsevier, vol. 49(4), pages 397-402, October.
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    1. Gamal Atallah & Aggey Semenov, 2018. "Technological Progress and Sectoral Shares," Australian Economic Papers, Wiley Blackwell, vol. 57(2), pages 142-153, June.

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    More about this item

    Keywords

    Cost decrease; productivity growth; sectoral shares; cost disease;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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