Accounting for Growth in the Age of the Internet: The Importance of Output-Saving Technical Change

42 Pages Posted: 10 Apr 2017

See all articles by Charles R. Hulten

Charles R. Hulten

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: April 2017

Abstract

We extend the conventional neoclassical production and growth framework, with its emphasis on total factor productivity as the primary macroeconomic mechanism of innovation, to allow for technical change that affects consumer welfare directly. Our model is based on Lancaster’s “New Approach to Consumer Theory,” in which there is a separate consumption technology that transforms goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is an output-saving technical change, in contrast to the resource-saving technical change of the TFP residual. The output-saving formulation is a natural way to think about the free information goods available over the Internet, which bypass GDP and go directly to the consumer. It also leads to the concept of expanded GDP (EGDP), the sum of conventional supply-side GDP and a willingness-to-pay metric of the value of output-saving innovation to consumers. This alternative concept of GDP is linked to output-saving technical change and incorporates the value of those technology goods that have eluded the traditional concept. It thus provides a potentially more accurate representation of the economic progress occurring during the digital revolution. One implication of our model is that living standards, as measured by EGDP, can rise at a faster rate than real GDP growth, which may shed light on the question of how the latter can decline in an era of rapid innovation.

Suggested Citation

Hulten, Charles R. and Nakamura, Leonard I., Accounting for Growth in the Age of the Internet: The Importance of Output-Saving Technical Change (April 2017). NBER Working Paper No. w23315. Available at SSRN: https://ssrn.com/abstract=2949639

Charles R. Hulten (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3804 (Phone)
215-574-4364 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
36
Abstract Views
502
PlumX Metrics