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How Important is Technology? A Counterfactual Analysis

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  • Yilmazkuday, Hakan

Abstract

The multiplier effect of total factor productivity on aggregate output in the one-sector neoclassical growth model is well known, but what about the effects of regional productivity levels on the aggregate output as well as other national and regional variables? This paper studies the impact of productivity changes in the goods sector and the transportation sector in a general equilibrium trade model where agents in each location produce different varieties of a common set of goods. Wages are assumed to be equalized in nominal terms across locations, with differences in purchasing power (due to trade costs) offset by agents' preferences for particular locations in the initial steady-state. Instead of assuming iceberg costs, a transportation sector is modeled to allow an efficient distribution of workers across the production and transportation sectors. The state level data from the U.S. support the model, and the comparative statics exercises have several implications on the national and state-level variables of the U.S. economy. It is shown that if the national production technology level (i.e., the production technology level in each region) is doubled, the national output increases by 5 times, the price dispersion across regions increases by 20%, the population dispersion across regions decreases by 1%, and the ratio of production labor force to transportation labor force increases by 10 times. As the transportation costs approach zero, the national output increases by more than 10 times, the price dispersion across regions decreases by 20%, the population dispersion across regions increases by 1%, and the ratio of production labor force to transportation labor force increases by 5 times.

Suggested Citation

  • Yilmazkuday, Hakan, 2009. "How Important is Technology? A Counterfactual Analysis," MPRA Paper 16838, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16838
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    File URL: https://mpra.ub.uni-muenchen.de/16838/1/MPRA_paper_16838.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yilmazkuday, Hakan, 2012. "Understanding interstate trade patterns," Journal of International Economics, Elsevier, vol. 86(1), pages 158-166.
    2. Hakan Yilmazkuday, 2011. "Agglomeration And Trade: State‐Level Evidence From U.S. Industries," Journal of Regional Science, Wiley Blackwell, vol. 51(1), pages 139-166, February.

    More about this item

    Keywords

    Technology; Trade; Intermediate Inputs; Transportation;

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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