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Biased Technical Change, Intermediate Goods and Total Factor Productivity

  • Moro, Alessio

Biased technical change can be defined as changes that affect the elasticity of output with respect to inputs. In this paper, I analyze the effect of biased technical change on total factor productivity (TFP). I construct an input-output economy in which firms produce gross output using capital, labor and intermediate goods. In equilibrium, biased technical change appears as an explicit part of TFP in the value added aggregate production function, where the latter is obtained through the aggregation of individual firms optimal decisions. A larger elasticity of gross output with respect to intermediates implies a smaller TFP level. I use the model to quantify the impact of biased technical change for measured TFP growth in Italy. The exercise shows that biased technical change can account for the productivity slowdown observed in Italy from 1994 to 2004.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we076034.

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Date of creation: Jun 2008
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Handle: RePEc:cte:werepe:we076034
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  1. Wolff, Edward N, 1996. "The Productivity Slowdown: The Culprit at Last? Follow-Up on Hulten and Wolff," American Economic Review, American Economic Association, vol. 86(5), pages 1239-52, December.
  2. Arilton Teixeira & Berthold Herrendorf, 2009. "How Barriers to International Trade Affect TFP," Fucape Working Papers 21, Fucape Business School.
  3. Richard Rogerson & Diego Restuccia, 2004. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," 2004 Meeting Papers 69, Society for Economic Dynamics.
  4. Guner, Nezih & Ventura, Gustavo & Xu, Yi (Daniel), 2007. "Macroeconomic Implications of Size-Dependent Policies," CEPR Discussion Papers 6138, C.E.P.R. Discussion Papers.
  5. CASTRO, Rui & CLEMENTI, Gian Luca & MACDONALD, Glenn, 2009. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," Cahiers de recherche 2009-08, Universite de Montreal, Departement de sciences economiques.
  6. Julio J. Rotemberg & Michael Woodford, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," NBER Working Papers 5634, National Bureau of Economic Research, Inc.
  7. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  8. Michael Bruno, 1984. "Raw Materials, Profits, and the Productivity Slowdown," The Quarterly Journal of Economics, Oxford University Press, vol. 99(1), pages 1-29.
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