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Demand-driven Technical Change and Productivity Growth: Theory and Evidence from the US Energy Policy Act

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  • Giammario Impullitti
  • Richard Kneller
  • Danny McGowan

Abstract

We study how demand shocks affect productivity by provoking technical change. Our model shows that increasing demand leads to technical change and productivity improvements through a direct market size effect and an indirect competition effect. We test the predictions using a natural experiment in the US corn industry where changes to national energy policy created exogenous increases in demand. Estimates show that the increase in demand caused technical change as corn producers adopted new technologies which in turn raised productivity by 5.7% per annum in the five years after the policy change. Although both channels are found to motivate technical change, the economic magnitude of the direct effect substantially outweighs the indirect effect.

Suggested Citation

  • Giammario Impullitti & Richard Kneller & Danny McGowan, 2017. "Demand-driven Technical Change and Productivity Growth: Theory and Evidence from the US Energy Policy Act," Discussion Papers 2017/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  • Handle: RePEc:not:notcfc:17/03
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    File URL: http://www.nottingham.ac.uk/cfcm/documents/papers/cfcm-2017-03.pdf
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    References listed on IDEAS

    as
    1. Daron Acemoglu & Ufuk Akcigit & Douglas Hanley & William Kerr, 2016. "Transition to Clean Technology," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 52-104.
    2. Giammario Impullitti & Omar Licandro, 2010. "Trade, Firm Selection, and Innovation: the Competition Channel," Working Papers 495, Barcelona Graduate School of Economics.
    3. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-243, May.
    4. repec:oup:revage:v:27:y:2005:i:2:p:164-180. is not listed on IDEAS
    5. Fernandez-Cornejo, Jorge & Livingston, Michael J. & Mitchell, Lorraine & Wechsler, Seth, 2014. "Genetically Engineered Crops in the United States," Economic Research Report 164263, United States Department of Agriculture, Economic Research Service.
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    More about this item

    Keywords

    demand; market size; technical change; productivity;

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