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Non-homothetic preferences and industry directed technical change


Boppart, Timo; Weiss, Franziska J (2013). Non-homothetic preferences and industry directed technical change. Working paper series / Department of Economics 123, University of Zurich.

Abstract

Sectoral data features (i) changing relative expenditures of different sectors, (ii) non-constancy in relative prices and (iii) long-run trends in relative TFP growth rates across sectors. We provide a tractable theory of industry directed technical change, which is able to reconcile these findings. In doing so, this paper emphasizes the importance of directed technical change, nonhomotheticity of preferences and structural change as a long-run phenomenon. Using the input-output tables of the U.S., our theory helps us to reconstruct how structural change in terms of final consumption affects the market size of industry value-added. Arguing that the structural change across broad categories of final consumption is exogenous from the perspective of an individual firm, this gives us an instrument for the industrial market size (at the valueadded level). We then empirically test for the market size effect of induced innovation. Our findings suggest that a 1 percent increase in an industry’s market size (relative to GDP) leads to an increase in the TFP growth rate of about 0.3 percentage points over five years.

Abstract

Sectoral data features (i) changing relative expenditures of different sectors, (ii) non-constancy in relative prices and (iii) long-run trends in relative TFP growth rates across sectors. We provide a tractable theory of industry directed technical change, which is able to reconcile these findings. In doing so, this paper emphasizes the importance of directed technical change, nonhomotheticity of preferences and structural change as a long-run phenomenon. Using the input-output tables of the U.S., our theory helps us to reconstruct how structural change in terms of final consumption affects the market size of industry value-added. Arguing that the structural change across broad categories of final consumption is exogenous from the perspective of an individual firm, this gives us an instrument for the industrial market size (at the valueadded level). We then empirically test for the market size effect of induced innovation. Our findings suggest that a 1 percent increase in an industry’s market size (relative to GDP) leads to an increase in the TFP growth rate of about 0.3 percentage points over five years.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C67, O14, O31, O33, O41
Uncontrolled Keywords:Directed technical change, structural change, non-homothetic preferences, input-output tables, market size effect
Language:English
Date:June 2013
Deposited On:11 Jun 2013 11:26
Last Modified:14 Aug 2017 12:44
Series Name:Working paper series / Department of Economics
Number of Pages:43
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/static/wp/econwp123.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php

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