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Accounting for Growth in the Age of the Internet: The Importance of Output-Saving Technical Change

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  • Charles Hulten
  • Leonard Nakamura

Abstract

We extend the conventional Solow growth accounting model to allow innovation to affect consumer welfare directly. Our model is based on Lancaster’s New Approach to Consumer Theory, in which there is a separate “consumption technology” that transforms the produced goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is “output-saving” technical change, in contrast to the Solow TFP “resource-saving” technical change. One implication of our model is that living standards can rise at a greater rate than real GDP growth.

Suggested Citation

  • Charles Hulten & Leonard Nakamura, 2017. "Accounting for Growth in the Age of the Internet: The Importance of Output-Saving Technical Change," NBER Working Papers 23315, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23315
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    References listed on IDEAS

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    Cited by:

    1. Nakamura, Leonard I. & Samuels, Jon & Soloveichik, Rachel, 2017. "Measuring the “Free” Digital Economy Within the GDP and Productivity Accounts," Working Papers 17-37, Federal Reserve Bank of Philadelphia.
    2. Benjamin Bridgman, 2018. "Is Productivity on Vacation? The Impact of the Digital Economy on the Value of Leisure," BEA Working Papers 0148, Bureau of Economic Analysis.
    3. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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