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Endogenous Growth and Investment-Specific Innovations - Evidence and Predictions

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  • Max Elger

    (Stockholm School of Economics)

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    Abstract

    In contrast to the previous literature, we document that more employment in research and development (RnD) yields faster productivity growth. We do not reject the ‘scale effect’ in growth. Previous studies have investigated the impact of RnD-input on total factor productivity growth. We instead focus on investment-specific productivity growth. Besides criticizing the prevailing view of no ’scale effects’ in RnD, we conduct the first quantitative study of endogenous growth with a structural model and time series data. Using quality-adjusted equipment price indexes to identify investment-specific technological progress, our calibrated two-sector endogenous growth model can explain RnD-input in the US over the post-war period. It follows that the model explains the major part of US growth.

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    Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 897.

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    Date of creation: 2007
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    Handle: RePEc:red:sed007:897

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    1. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
    2. Daniel J. Wilson, 2002. "Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 285-317, April.
    3. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
    4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    5. Joonkyung Ha & Peter Howitt, 2007. "Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 733-774, 06.
    6. Diego Comin, 2004. "R&D: A Small Contribution to Productivity Growth," Journal of Economic Growth, Springer, vol. 9(4), pages 391-421, December.
    7. Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-specific technical change in the US (1947-2000): measurement and macroeconomics consequences," Finance and Economics Discussion Series 2002-10, Board of Governors of the Federal Reserve System (U.S.).
    8. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
    9. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
    10. Howitt, Peter & Aghion, Philippe, 2006. "Appropriate Growth Policy: A Unifying Framework," Scholarly Articles 4554121, Harvard University Department of Economics.
    11. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
    12. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
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