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Evidence of induced innovation in US sectoral Capital´s shares

  • Andrew T. Young

    ()

  • Hernando Zuleta

    ()

  • Andrés F. García-Suaza

    ()

We use annual data on capital´s share and relative factor prices from 35 US industriesfrom 1960 to 2005 to test the induced innovation hypothesis. We derive, from a productionfunction framework, testable implications for the effect of contemporaneous and lagged factorprice ratios on capital´s share of production. The predicted effect is positive or negativedepending on the elasticity of substitution between labor and capital. From panel regressions, theestimated effect of the contemporaneous factor price ratio implies an elasticity of substitutionthat is less than unity, consistent with the consensus from the literature. Based on this, ournegative estimated effects for lagged price ratios are both statistically significant and consistentwith the induced innovation hypothesis.

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Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 006740.

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Length: 27
Date of creation: 06 Mar 2010
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Handle: RePEc:col:000092:006740
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  1. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 781-809, October.
  2. Robert Chirinko & Steven M. Fazzari & Andrew P. Meyer, 2002. "That Elusive Elasticity: A Long-panel Approach to Estimating the Price Sensitivity of Business Capital," Emory Economics 0202, Department of Economics, Emory University (Atlanta).
  3. Hernando Zuleta, 2007. "An empirical note on factor shares," DOCUMENTOS DE TRABAJO 004363, UNIVERSIDAD DEL ROSARIO.
  4. Benjamin Bental & Dominique Demougin, 2005. "Do Factor Shares Reflect Technology?," SFB 649 Discussion Papers SFB649DP2005-050, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
  6. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
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