Non-homothetic preferences and industry directed technical change

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 123

Classification and Topics

• Classification: Wirtschaft ; Input-Output Models ; Industrialization; Manufacturing and Service Industries; Choice of Technology ; Innovation and Invention: Processes and Incentives ; Technological Change: Choices and Consequences; Diffusion Processes ; One, Two, and Multisector Growth Models
• Subject: directed technical change ; structural change ; non-homothetic preferences ; input-output tables ; market size effect

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Boppart, Timo ; Weiss, Franziska J.
• Event: Veröffentlichung
• (who): University of Zurich, Department of Economics
• (where): Zurich
• (when): 2013

Further information

• DOI: doi:10.5167/uzh-78435
• Handle: http://hdl.handle.net/10419/77546
• Last update: 10.03.2025, 11:44 AM CET