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Impact of technical change via intermediate consumption: exhaustive general equilibrium growth accounting and reassessment applied to USA 1954–1990

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  • Georges Daw

    (Université Paris 8 Vincennes - Saint-Denis
    ESSCA School of Management, Dept Economics, Law & Society
    Université Paris 1 Panthéon–Sorbonne)

Abstract

Should intermediate consumption (IC), which historically accounts for around 50% of the value of production, be considered in growth accounting? The current growth accounting exercise does not model IC. This means that when IC experiences productivity gains, its capacity to transmit them to the whole economy is currently neglected. The rare current literature on this issue diverges substantially on the importance of the role of the IC as an explanatory factor of growth. We propose a bi-sectoral general equilibrium model that allows for an accounting where each productive sector contributes to growth in proportion to its weight in the economy. Our theoretical framework and the (proportional) growth accounting exercise it allows (i.e., calculating the contribution of technical change conveyed by IC and other usual key factors, such as: Global and sectoral TFP, Global and sectoral Capital deepening) are thoroughly presented. The proposed framework is autonomous and calibrated pedagogically. However, to illustrate empirically in a comparative way how it works, we have shown that it can also be reduced to a particular case of the literature and calibrated it on the US economy (1954–1990). Although this consistently improves the growth accounting accuracy, our results reveal that the IC has nevertheless contributed only 2% to US growth. We compared this result to the literature. The key factors influencing its magnitude were also highlighted and discussed.

Suggested Citation

  • Georges Daw, 2024. "Impact of technical change via intermediate consumption: exhaustive general equilibrium growth accounting and reassessment applied to USA 1954–1990," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 55-87, January.
  • Handle: RePEc:spr:portec:v:23:y:2024:i:1:d:10.1007_s10258-022-00224-z
    DOI: 10.1007/s10258-022-00224-z
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    More about this item

    Keywords

    General equilibrium models for growth accounting; Technical change; Relative prices; Gross output; value-added; sectoral productions; and IC; Growth Residual or Total Factor Productivity (TFP);
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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