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Accounting for Productivity Growth When Technical Change is Biased

Research on Innovation Working Paper No. 0802

35 Pages Posted: 6 Feb 2009 Last revised: 17 Jan 2015

James E. Bessen

Boston University - School of Law; Research on Innovation

Date Written: February 6, 2009

Abstract

Solow (1957) decomposed labor productivity growth into two components that are independent under Hicks neutrality: input growth and the residual, representing technical change. However, when technical change is Hicks biased, input growth is no longer independent of technical change, leading to ambiguous interpretation. Using Solow's model, I decompose output per worker into globally independent sources and show that technical bias directly contributes to labor productivity growth above what is captured in the Solow residual. This contribution is sometimes large, generating rates of total technical change that substantially exceed the Solow residual, prompting a reinterpretation of some well-known studies.

Keywords: technical change, productivity growth, technical bias, innovation

JEL Classification: O33, O47, N61

Suggested Citation

Bessen, James E., Accounting for Productivity Growth When Technical Change is Biased (February 6, 2009). Research on Innovation Working Paper No. 0802. Available at SSRN: https://ssrn.com/abstract=1338765 or http://dx.doi.org/10.2139/ssrn.1338765

James E. Bessen (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Research on Innovation ( email )

202 High Head Rd.
Harpswell, ME 04079
United States
617-531-2092 (Phone)

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