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Technology Diffusion and Aggregate Dynamics

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  • David Andolfatto

    (Department of Economics, Simon Fraser University)

  • Glenn M. MacDonald

Abstract

This paper develops and analyzes a macroeconomic model in which aggregate growth and fluctuations arise from the discovery and diffusion of new technologies; there are no exogenous aggregate shocks. The temporal behavior of aggregates is driven by individuals' efforts to innovate and/or make use of others' innovations. Parameters describing preferences, production possibilities and learning technologies are estimated using post-war U.S. data. The model delivers predicted aggregates that grow and fluctuate much like the data. The key features of post-war growth are explained by new technologies that differ in terms of the magnitude of their improvement over existing methods and the difficulty of acquiring them. The model implies a negative trend in technological dispersion, and that the generally lower growth witnessed during the last two decades is the result of new technologies offering comparatively minor or less broadly-applicable improvements. Data on the growing and fluctuating share of engineering Ph.D.s support the model's technological interpretation of the growth facts, and data on patent applications and adult schooling are consistent with the notion that newer technologies are more specific and proprietary.

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Bibliographic Info

Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number 98005.

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Length: 59 pages
Date of creation: Jan 1998
Date of revision: Jan 1998
Handle: RePEc:wat:wpaper:98005

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  1. Jeffrey R. Campbell, 1997. "Computational Appendix to Entry, Exit, Embodied Technology, and Business Cycles," Technical Appendices, Review of Economic Dynamics campbell98, Review of Economic Dynamics.
  2. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, Elsevier, vol. 65(1), pages 83-108, January.
  3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, Econometric Society, vol. 60(2), pages 323-51, March.
  4. Boyan Jovanovic & Rafael Rob, 1990. "Long Waves and Short Waves: Growth Through Intensive and Extensive Search," Levine's Working Paper Archive 2082, David K. Levine.
  5. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 630-53, September.
  6. Boyan Jovanovic & Glenn MacDonald, 1993. "Competitive Diffusion," NBER Working Papers 4463, National Bureau of Economic Research, Inc.
  7. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(4), pages 561-83, August.
  8. Andolfatto, D. & MacDonald, G.M., 1995. "Endogeneous Technological Change, Growth, and Aggregate Functions," Working Papers, University of Waterloo, Department of Economics 9504, University of Waterloo, Department of Economics.
  9. Boyan Jovanovic & Saul Lach, 1995. "Product innovation and the business cycle," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-46, Board of Governors of the Federal Reserve System (U.S.).
  10. Macdonald, G.M., 1988. "Competitive Diffusion," University of Chicago - Economics Research Center, Chicago - Economics Research Center 88-10, Chicago - Economics Research Center.
  11. Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc.
  12. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  13. Lippi, Marco & Reichlin, Lucrezia, 1993. "Diffusion of Technical Change and the Decomposition of Output into Trend and Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 775, C.E.P.R. Discussion Papers.
  14. Bental, Benjamin & Peled, Dan, 1996. "The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 687-718, August.
  15. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper, Federal Reserve Bank of Cleveland 9312, Federal Reserve Bank of Cleveland.
  16. Andreas Hornstein & Per Krusell, 1996. "Can Technology Improvements Cause Productivity Slowdowns?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1996, Volume 11, pages 209-276 National Bureau of Economic Research, Inc.
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