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Biased Technical Change, Intermediate Goods and Total Factor Productivity

  • Alessio Moro

    ()

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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File URL: http://e-archivo.uc3m.es/bitstream/10016/930/7/we076034-2.pdf
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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we076034.

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Date of creation: Jan 2007
Date of revision: Jun 2008
Handle: RePEc:cte:werepe:we076034
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  1. Berthold Herrendorf & Arilton Teixeira, 2005. "How Barriers to International Trade Affect TFP," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 866-876, October.
  2. Xu Yi & Nezih Guner & Gustavo Ventura, 2005. "Macroeconomic Implications of Size Dependent Policies," 2005 Meeting Papers 530, Society for Economic Dynamics.
  3. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
  4. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Working Papers tecipa-283, University of Toronto, Department of Economics.
  5. Rui Castro & Gian Luca Clementi & Glenn MacDonald, 2004. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," 2004 Meeting Papers 162, Society for Economic Dynamics.
  6. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-77, November.
  7. Bruno, Michael, 1984. "Raw Materials, Profits, and the Productivity Slowdown," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 1-29, February.
  8. 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.
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