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Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence

  • Daniel J. Wilson

    (Federal Reserve Bank of San Francisco)

his paper provides an exploratory analysis of whether data on the research and development (R&D) spending directed at particular technological/product fields can be used to measure industry-level capital-embodied technological change. Evidence from the patent literature suggests that the R&D directed at a product, as the main input into the "innovation" production function, is proportional to the value of the innovations in that product. I confirm this hypothesis by showing that the decline in the relative price of a good is positively correlated with the R&D directed at that product. The hypothesis implies that the technological change, or innovation, embodied in an industry's capital is proportional to the R&D that is done ("upstream") by the economy as a whole on each of the capital goods that a ("downstream") industry purchases. Using R&D data from the National Science Foundation, I construct measures of capital-embodied R&D. I find they have a strong effect on conventionally measured total-factor productivity growth, a phenomenon that seems to be due partly to the mismeasurement of quality change in the capital stock and partly to a positive correlation between embodied and disembodied technological change. Finally, I find the cross-industry variation in empirical estimates of embodied technological change accord with the cross-industry variation in embodied R&D

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File URL: http://dx.doi.org/10.1006/redy.2002.0163
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 5 (2002)
Issue (Month): 2 (April)
Pages: 285-317

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Handle: RePEc:red:issued:v:5:y:2002:i:2:p:285-317
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