Detecting technological progress in Russia: Intersectoral approach or the aggregate economy

We pioneer the estimation of technological progress parameters for Russia in the framework of the neoclassical theory. Implementing the CES production function (CES PF hereafter) as an instrument of output description, we construct a system of cointegrated time series which guarantee no spurious interpretations. Our analysis follows a logical transition from an aggregate to a sectoral level and is based on two convergent datasets of different length. For the aggregate economy most of our accepted models generally forecast a slight labor income share increase under capital-augmenting technical progress biased to labor. Selected models with structural break in 2008–2009 show below-unity elasticity of substitution between labor and capital. Sectoral estimates stand in support of labor income share (LS) growth across six of the eight analyzed economic sectors. We empirically illustrate the rule for LS direction in response to joint values of labor-to-capital elasticity of substitution and a combination of the relative factor intensity and the average growth rate of labor-to-capital ratio. The fact that the values of relative labor intensity in the Mining and Energy & Waste management sectors are less than the growth of labor-to-capital ratio provide no grounds for labor share rise. While our reduced-form evidence suggests that broad capital tax relaxations in these two sectors are unlikely to raise LS, this should be read as a hypothesis for future causal work rather than a policy prescription.