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Investment-specific technological progress in the United Kingdom

In: Empirical studies of structural changes and inflation

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  • Hasan Bakhshi

    (Bank of England)

  • Jens Larsen

    (Bank of England)

Abstract

This paper analyses the impact of rapid technological change in the information and communications technology (ICT) sector on economic growth. Technological change in the ICT sector leads to a fall in the relative price of ICT goods, which leads firms to invest more heavily in high-tech goods. The approach is to build a dynamic general equilibrium model that is consistent with key stylised facts of the UK economy. The model is used to quantify the contribution to long-run growth of technological progress that is specific to the ICT sector. It is found that technological progress that is specific to the ICT sector might account for around 20%-30% of long-run labour productivity growth. But this conclusion depends crucially on how ICT prices are measured. It is shown that shocks to technological progress that is specific to production of ICT investment goods can have very different macroeconomic implications from a shock that applies to production of all goods. It is demonstrated that a permanent increase in the growth rate of ICT-specific technological progress will increase the investment expenditure share of GDP but lower the aggregate depreciation rate, while an increase in the return to investment in ICT will increase both the expenditure share and the depreciation rate.
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Suggested Citation

  • Hasan Bakhshi & Jens Larsen, 2001. "Investment-specific technological progress in the United Kingdom," BIS Papers chapters, in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 49-80, Bank for International Settlements.
  • Handle: RePEc:bis:bisbpc:03-03
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    Cited by:

    1. Lydon, Reamonn & Scally, John, 2014. "Trends in Business Investment," Quarterly Bulletin Articles, Central Bank of Ireland, pages 76-89, January.
    2. Nicholas Oulton, 2002. "ICT and Productivity Growth in the United Kingdom," Oxford Review of Economic Policy, Oxford University Press, vol. 18(3), pages 363-379.
    3. Hasan Bakhshi & Nicholas Oulton & Jamie Thompson, 2003. "Modelling investment when relative prices are trending: theory and evidence for the United Kingdom," Bank of England working papers 189, Bank of England.
    4. Nicholas Oulton, 2004. "Productivity Versus Welfare; Or GDP Versus Weitzman's NDP," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(3), pages 329-355, September.
    5. Simon, John & Wright, Sharon, 2005. "L’utilisation des technologies de l’information et sa contribution à la croissance en Australie," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 165-202, Mars-Juin.
    6. Juan Paez-Farrell, 2003. "The New Keynesian Phillips Curve: Some Counterfactual Evidence," Macroeconomics 0312003, University Library of Munich, Germany.
    7. Oulton, Nicholas, 2007. "Investment-specific technological change and growth accounting," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1290-1299, May.
    8. Colin Ellis, 2006. "Elasticities, markups and technical progress: evidence from a state-space approach," Bank of England working papers 300, Bank of England.
    9. John Simon & Sharon Wardrop, 2002. "Australian Use of Information Technology and its Contribution to Growth," RBA Research Discussion Papers rdp2002-02, Reserve Bank of Australia.
    10. Hashmat Khan & Marjorie Santos, 2002. "Contribution of ICT Use to Output and Labour-Productivity Growth in Canada," Staff Working Papers 02-7, Bank of Canada.
    11. Bakhshi, Hasan & Larsen, Jens, 2005. "ICT-specific technological progress in the United Kingdom," Journal of Macroeconomics, Elsevier, vol. 27(4), pages 648-669, December.

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