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Yeast vs. Mushrooms: A Note on Harberger's "A Vision of the Growth Process"

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  • Mauro Napoletano
  • Andrea Roventini
  • Sandro Sapio

Abstract

Harberger's "A Vision of the Growth Process", Presidential Address at the 1998 Annual Meeting of the American Economic Association, provides evidence that contributions to aggregate real cost reduction (RCR) are concentrated in a small number of industries. According to Harberger, this is because the effect of broad externalities - such as those linked to the growth of the total stock of knowledge or human capital, or brought about by economies of scale tied to the scale of the economy - is negligible as compared to industry- and firm-specific causes of productivity growth. The argument is that, if growth was driven mainly by broad externalities, contributions to aggregate RCR ought to be quite evenly distributed across sectors. Hence, the growth process looks more like "mushrooms" than "yeast". In this note, we argue that Harberger's evidence is not incompatible with the yeast vision. More specifically, we show that, if there is heterogeneity in the elasticities of sectoral total factor productivities (TFP) to shocks from other sectors, then concentration in the sectoral contributions to aggregate RCR can occur. But this is true even if sectoral TFP growth processes are completely driven by a broad externality stemming from a single sector. To the extent that the response of a sector's TFP to shocks from other sectors can be seen as a measure of absorptive capacity, we suggest that a realistic description of the growth process must go beyond the simple dichotomy "yeast vs. mushrooms", and take account of the intersectoral patterns of knowledge transfer.

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Bibliographic Info

Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2004/03.

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Date of creation: 01 Feb 2004
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Handle: RePEc:ssa:lemwps:2004/03

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Keywords: Growth; Real Cost Reduction; Total Factor Productivity; Absorptive Capacity;

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References

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Paul David & Gavin Wright, 1999. "Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of Our Ignorance," Economics Series Working Papers 1999-W33, University of Oxford, Department of Economics.
  3. Rosenberg, Nathan & Trajtenberg, Manuel, 2001. "A General Purpose Technology at Work: The Corliss Steam Engine in the Late 19th Century," CEPR Discussion Papers 3008, C.E.P.R. Discussion Papers.
  4. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  5. Rosenberg, N. & Trajtenberg, M., 2001. "A General Purpose Technology at Work: The Corliss Steam Engine in the late 19th Century US," Papers 2001-27, Tel Aviv.
  6. David, Paul A, 1990. "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, American Economic Association, vol. 80(2), pages 355-61, May.
  7. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  8. Timothy F. Bresnahan & Manuel Trajtenberg, 1992. "General Purpose Technologies "Engines of Growth?"," NBER Working Papers 4148, National Bureau of Economic Research, Inc.
  9. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  10. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Chapters, in: Resource and Output Trends in the United States Since 1870, pages 1-23 National Bureau of Economic Research, Inc.
  11. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
  12. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  13. Devine, Warren D., 1983. "From Shafts to Wires: Historical Perspective on Electrification," The Journal of Economic History, Cambridge University Press, vol. 43(02), pages 347-372, June.
  14. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Books, National Bureau of Economic Research, Inc, number abra56-1, July.
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Cited by:
  1. Sandro Sapio & Grid Thoma, 2006. "The Growth of Industrial Sectors: Theoretical Insights and Empirical Evidence from U.S. Manufacturing," LEM Papers Series 2006/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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