9 Innovation, structural change, GPTs, and economic growth Flashcards
In the Solow Swan model, what are the properties of the Cobb Douglas production function?
Write down the production function and prove those
properties.
Neoclassical production function: Yt=AtKt^α*Lt^(1−𝛼) with 00 and 𝜕2𝑌𝜕𝐾2<0
𝜕𝑌𝜕𝐾=𝐴∗(𝛼𝐾^(𝛼−1)∗𝐿^(1−𝛼)) positive because 0
Represent graphically the capital accumulation function of the Solow Swan model showing the optimal level of per capita capital in the steady state equilibrium.
What happens to the per capita capital when the saving rate s increases?
The fundamental equation of the Solow Swan growth model explains the per capita accumulation ሶ 𝑘
IMPORTANT:
A change in the saving rate, the rate of population growth, and the depreciation rate do not affect the steady state growth rates of the per capita output, capital, and consumption which are still equal to 0
Difference between moving along a curve and shifting a curve
The capital provided to the company is then invested in the economic activity to generate value. This is how savings are transformed into accumulated capital and growth. Spending all income on consumption of goods would not contribute to capital accumulation
In what does the growth accounting approach consist of?
Derived from the Solow swan model and used to disentangle the two main components responsible for growth:
the level of factors and their marginal productivity,
TFP Total Factor Productivity
ሶሶYY=g+MPK∗KY∗ሶሶKK+MPL∗LY∗ሶሶLL
Considering growth in factor prices instead of growth in factor quantities leads to the equation:
ሶ 𝑌𝑌=𝑔+𝑀𝑃𝐾∗𝐾𝑌∗ሶ 𝑅𝑅+𝑀𝑃𝐿∗𝐿𝑌∗ሶ 𝑤𝑤
where
ሶ 𝑅𝑅and
ሶ 𝑤𝑤represent the growth in the rent of capital and wage, respectively
In growth theories, what is the relationship between the Total Factor Productivity (TFP ), A , and the Solow residual?
In Cobb Douglas production function the Total Factor Productivity (TFP) could be defined as
the total output growth after getting rid of the growth due to increase in factor inputs (capital
K and labour L ).
In the Cobb Douglas production function this is represented by the parameter A
In the Solow Swan model A is exogenous, which means that it is NOT explained by the
model itself
Theories of structural change try to provide an explanation for differences in TFP across
sectors of an economy or countries
In econometric studies, TFP remains unexplained in the sense that it is measured through
the constant term of the regression
From this the name “Solow residual” with which A and TFP are often addressed
Rearranged growth accounting equation as a function of the TPF:
ሶሶYY=g+MPK∗KY∗ሶሶKK+MPL∗LY∗ሶሶLL, the Solow residual is isg=ሶሶYY−MPK∗KY∗ሶሶKK+MPL∗LY∗ሶሶLL
In the Solow Swan model, what is the determinant of continuous growth even in
the long run?
in the long run the per capita growth of capital and output is zero given a fixed level of s, n and A
s and A could be varied over time and this would affect the steady state levels of K and Y
An increase in s would temporarily increase the per capita output growth technological change is the only way to achieve a continuous growth even in the long run
If n decreases, the steady state level of k increases
It is not possible to achieve long term growth through a decrease in the growth rate of the population
In which sense are the new growth theories endogenous?
In the sense that they explain the long run growth by relaxing the assumption of
diminishing marginal returns to productive inputs and accounting for spillovers
non decreasing returns to productive factors: the increase in one of the two productive inputs always leads to a proportional increase in output, while spillovers add to that by further increasing the contribution of K and L to growth
Different specification of the production function
For instance, AK model by Rebelo 1991) which differ in that:
- An increase in the saving rate s does not lead to convergence but permanently raises the per capita capital growth rate
- Given the same constant level of technology A, poor and rich countries grow at the same level regardless of the initial level of capital endowment (while in the Solow Swan model poor countries grow faster)
- Convergence between rich and poor countries is not achieved (even when the economies share the same structural parameters s and A
In presence of spillovers the production function for a firm i takes the following
general specification: 𝑌𝑖=𝐴𝐾𝑖𝛼𝐾𝛽𝐿𝑖1−𝛼,with 𝛽≥ 0
For a given level of capital K, the firm exhibits constant returns to scale in the private inputs K i and L i, which also show decreasing marginal returns.
Because of the presence of technological spillovers, the social returns to K (here represented by 𝐾𝛽) are also positive.
Whether 𝐾𝛽represents the spillovers due to the diffusion of technology across
firms the economy wide production function
𝑌=𝐴𝐾𝛼+𝛽𝐿1−𝛼
Provide a definition of structural change. Which role does structural change play
in explaining growth?
Structural change refers to the long term and persistent reallocation of production factors across sectors of an economy
Such changes concern the shares of employment (or output) across sectors of an economy
S tructural changes might also interest the localization of the productive activity as well as the institutional environment
Structural change can be positive or negative
Productivity growth can be achieved in 2 different ways: Within an economic sector and Across sectors (s tructural change)
ΔYt=i=nθi,t−kΔyi,t+i=nyi,tΔθi,t,
where 𝜃is the share of employment in sector i
What do we mean by “General Purpose Technology”? Which are main characteristics of GPTs?
General Purpose Technology
GPTs are considered to be the engine of growth
because of their ability to catalyze technical progress and foster generalized productivity gains across decades by transforming means and methods of
production.
The main characteristics of a GPT:
• Pervasiveness application in many sector of the economy
• Potential for technical improvement , as a direct consequence of pervasiveness
• Ability to drive innovational complementarities effective use of GPTs requires complementary investments in the using sector, which in turn improve productivity of R&D in that sector.
What is the motivation from an economic point of view?
Objective: examine early nanotechnology development activity to test the proposition, and add to preliminary findings that nanotechnology displays the characteristics of a GPT -> Innovation -> Pervasiveness -> Improvement
Definition in this study
Nanotechnology is the deliberate manipulation of nanoscale matter with the intention of developing materials, devices and systems that have novel properties and function with commercialization potential
What is the theoretical background?
General Purpose Technologies
Theoretical concept advanced by economists Bresnahan and Trajtenberg (1995) for evaluating the extent and nature of development activity and diffusion patterns of a specific type of technological innovation
- According to them, a GPT is a fundamental invention that, while it may appear of little value in and of itself, is shared within and across industries, and enables
valuable inventions and innovations within a wide variety of application areas - Determine whether early nanotechnology developments would display the characteristics of innovation, pervasiveness, and improvement that are indicative of an emerging GPT
What is the methodological approach of the research?
3 hypotheses, based on Bresnahan and Trajtenberg (
Hypothesis 1: Nanotechnology based innovation will display an increasingly rapid rate of growth when compared with technological innovation in general
Innovation
Hypothesis 2: Nanotechnology based innovation will show evidence of spreading across a wide variety of technology and industry sectors-> Pervasiveness
Hypothesis 3: Nanotechnology based innovation will show evidence of improvement over time -> Improvement
Evaluation of the three hypotheses by means of a patent analysis
Advantages of a patent analysis
- Government held patent databases offer a wealth of information about new developments
- Patents afford a good bird’s eye view of what is happening in an area of technological development in its early, emergent stages
Disadvantages of a patent analysis
- Not all worthwhile inventions are patented and the value of some patented inventions can be suspect
- Employing patent data is problematic because ‘the patent characteristics that have traditionally been collected are either not available, or numbers are rather small and thus prone to statistical error’
- Problematic identification of nanotechnology patents
Determine the flow of knowledge among nanotechnology and non nanotechnology patents to determine whether it is within and/or between:
- a single technology sector and multiple technology sectors
- basic science and applications
- nanotechnology and non nanotechnology patents
- a single industry and multiple industries
- a single organization and multiple organizations
What are the results of the empirical research?
Hypothesis 1
: Analysis of the growth rate of nanotechnology patents shows a
strong, statistically significant growth in nanotechnology relative to total patents
Hypothesis 2:
Measures of pervasiveness based on patent citations provide evidence of a rapid spread through differing technology and industrial sectors
Hypothesis 3: Tracing the development of nanotube production processes demonstrates how nanotechnology can improve over time through cost reductions or quality improvements
Together, these results point to the probability that nanotechnology will develop and diffuse in a manner consistent with previous transformational GPTs
