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Does Hedonic Price Indexing Change Our Interpretation of Economic History? Evidence from Swedish Electrification

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  • Edquist, Harald

    () (Research Institute of Industrial Economics (IFN))

Abstract

Rapid price decreases for ICT-products in the 1990s have been largely attributed to the introduction of hedonic price indexes. Would hedonic price indexing also have large effects on measured price and productivity during other technological breakthroughs? This paper investigates the impact of hedonic and matched model methods on historical data for electric motors in Sweden 1900–35. The results show that during the productivity boom of the 1920s, the constant prices for electric motors decreased by 9.7 and 8.1 percent per year depending on whether hedonic or matched model price indexes were used. This indicates high productivity growth in the industry producing electric motors 1920–29. In contrast to Sweden, the US annual total factor productivity was only, according to current best estimates, 3.5 percent in Electric machinery compared to 5.3 percent in manufacturing 1920–29. However, hedonic price indexes were not used to calculate US productivity. Moreover, in comparison to the matched model, the hedonic price index on average overestimates price decreases when prices are decreasing and overestimates price increases when prices are increasing. However, the total effect of the two different price indexes remains approximately the same in 1900–35. Finally, it is shown that the price decreases for electric motors in the 1920s are not in par with the price decreases for ICT-equipment in the 1990s, even if hedonic indexing is used.

Suggested Citation

  • Edquist, Harald, 2008. "Does Hedonic Price Indexing Change Our Interpretation of Economic History? Evidence from Swedish Electrification," Working Paper Series 742, Research Institute of Industrial Economics, revised 03 Sep 2009.
  • Handle: RePEc:hhs:iuiwop:0742
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    References listed on IDEAS

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    1. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, pages 83-108.
    2. Devine, Warren D., 1983. "From Shafts to Wires: Historical Perspective on Electrification," The Journal of Economic History, Cambridge University Press, vol. 43(02), pages 347-372, June.
    3. Nicholas Crafts, 2004. "Steam as a general purpose technology: A growth accounting perspective," Economic Journal, Royal Economic Society, vol. 114(495), pages 338-351, April.
    4. David, P.A., 1989. "Computer And Dynamo: The Modern Productivity Paradox In A Not-Too Distant Mirror," The Warwick Economics Research Paper Series (TWERPS) 339, University of Warwick, Department of Economics.
    5. David, Paul A, 1990. "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, American Economic Association, vol. 80(2), pages 355-361, May.
    6. Edquist, Harald, 2005. "The Swedish ICT miracle -- myth or reality?," Information Economics and Policy, Elsevier, vol. 17(3), pages 275-301, July.
    7. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, vol. 91(2), pages 268-273, May.
    8. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    9. Jack Triplett, 2004. "Handbook on Hedonic Indexes and Quality Adjustments in Price Indexes: Special Application to Information Technology Products," OECD Science, Technology and Industry Working Papers 2004/9, OECD Publishing.
    10. Edquist, Harald & Henrekson, Magnus, 2004. "Technological Breakthroughs and Productivity Growth," SSE/EFI Working Paper Series in Economics and Finance 0562, Stockholm School of Economics, revised 23 Jan 2006.
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    Cited by:

    1. Crafts, Nicholas, 2014. "Productivity Growth during the British Industrial Revolution: Revisionism Revisited," CAGE Online Working Paper Series 204, Competitive Advantage in the Global Economy (CAGE).
    2. Crafts, Nicholas, 2011. "Economic History Matters," CAGE Online Working Paper Series 58, Competitive Advantage in the Global Economy (CAGE).
    3. Crafts, Nicholas & O'Rourke, Kevin Hjortshøj, 2013. "Twentieth Century Growth," CEPR Discussion Papers 9633, C.E.P.R. Discussion Papers.
    4. Crafts, Nicholas, 2012. "Western Europe's Growth Prospects: an Historical Perspective," CEPR Discussion Papers 8827, C.E.P.R. Discussion Papers.
    5. Crafts, Nicholas & O’Rourke, Kevin Hjortshøj, 2014. "Twentieth Century Growth*This research has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007-2013) / ERC grant agreement no. 249546.," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 263-346 Elsevier.

    More about this item

    Keywords

    Hedonic Price Index; Electric Motor; Productivity Growth; Electrification; ICT Revolution; Productivity Growth; General Purpose Technologies;

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • N60 - Economic History - - Manufacturing and Construction - - - General, International, or Comparative
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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