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Technology Adoption Costs and Productivity Growth: The Transition to Information Technology

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  • James Bessen

    (Research on Innovation)

Abstract

Using two panels of U.S. manufacturing industries, this paper estimates capital adjustment costs from 1961 to 1996. I find that from 1974-83 adjustment costs rose sharply --they more that doubled from about 3% of output to around 7%. Moreover, this increase is specifically associated with a shift to investment in information technology. But such large adoption costs imply that the Solow residual mismeasures productivity growth: adoption costs are resource costs representing an unmeasured investment. I find that when this investment is included, productivity grew about 0.4% per annum faster than official measures during the 70's and early 80's, reducing the size of the productivity "slowdown." Indeed, estimated productivity growth rates were roughly the same from 1974-88 as from 1949-73. Thus technology transitions critically affect productivity growth measurement. (Copyright: Elsevier)

Suggested Citation

  • James Bessen, 2002. "Technology Adoption Costs and Productivity Growth: The Transition to Information Technology," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 443-469, April.
  • Handle: RePEc:red:issued:v:5:y:2002:i:2:p:443-469
    DOI: 10.1006/redy.2001.0152
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    References listed on IDEAS

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    More about this item

    Keywords

    Technological change; productivity; adjustment cost; information technology;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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