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Growth Accounting When Technical Change is Embodied in Capital


  • Charles R. Hulten


Many technological innovations are introduced through improvements in the design of new investment goods, thus raising the possibility that capital-embodied technical change may be a significant source of total factor productivity growth. There are, however, no systematic estimates of the size of the embodiment effect. This paper attempts to fill this gap by merging the estimates of quality change obtained from the price literature on quality change with a version of the conventional sources of growth model which allows for both embodied and disembodied technical change. This resulting estimates suggest that as much as 20 percent of the total factor productivity in growth U.S. manufacturing industry over the period 1949-83 is due to the embodiment effect. It is also found that for the equipment used in U.S. manufacturing, best practice technology may be as much as 23 percent above the average level of technical efficiency.

Suggested Citation

  • Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3971
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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    2. Edmund S. Phelps, 1962. "The New View of Investment: A Neoclassical Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 76(4), pages 548-567.
    3. Jorgenson, Dale W., 1966. "The Embodiment Hypothesis," Scholarly Articles 3403063, Harvard University Department of Economics.
    4. Dale W. Jorgenson, 1966. "The Embodiment Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 74, pages 1-1.
    5. R. C. O. Matthews, 1964. ""The New View of Investment": Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 78(1), pages 164-172.
    6. Gregory, R G & James, Denis W, 1973. "Do New Factories Embody Best Practice Technology?," Economic Journal, Royal Economic Society, vol. 83(332), pages 1133-1155, December.
    7. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    8. Evsey D. Domar, 1963. "Total Productivity and the Quality of Capital," Journal of Political Economy, University of Chicago Press, vol. 71, pages 586-586.
    9. Michael Gort & Raford Boddy, 1967. "Vintage Effects and the Time Path of Investment in Production Relations," NBER Chapters,in: The Theory and Empirical Analysis of Production, pages 395-430 National Bureau of Economic Research, Inc.
    10. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, January.
    11. R. E. Hall, 1968. "Technical Change and Capital from the Point of View of the Dual," Review of Economic Studies, Oxford University Press, vol. 35(1), pages 35-46.
    12. Baily, Martin & Gordon, Robert J, 1989. "Measurement Issues, the Productivity Slowdown and the Explosion of Computer Power," CEPR Discussion Papers 305, C.E.P.R. Discussion Papers.
    13. Franklin M. Fisher, 1965. "Embodied Technical Change and the Existence of an Aggregate Capital Stock," Review of Economic Studies, Oxford University Press, vol. 32(4), pages 263-288.
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