Investment-Specific Technical Change in the Us 1947-2000: Measurement and Macroeconomic Consequences

56 Pages Posted: 11 Feb 2002

See all articles by Jason G. Cummins

Jason G. Cummins

Brevan Howard Asset Management LLP

Giovanni L. Violante

New York University, Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2002

Abstract

By extrapolating Gordon's (1990) measures of the quality-bias in the official price indexes, we construct quality-adjusted price indexes for 24 types of equipment and software (E&S) from 1947 to 2000 and use them to measure technical change at the aggregate and at the industry level. Technological improvement in E&S accounts for an important fraction of postwar GDP growth and plays a key role in the productivity resurgence of the 1990s. Driving this finding is 4 percent annual growth in the quality of E&S in the postwar period and more than 6 percent annual growth in the 1990s. The acceleration in the 1990s occurred in every industry, consistent with the idea that information technology represents a general purpose technology. Furthermore, we measure for the aggregate economy and different sectors the "technological gap": how much more productive new machines are compared to the average machine. We show that the technological gap explains the dynamics of investment in new technologies and the returns to human capital, consistent with Nelson and Phelps' (1966) conjecture. Since the technological gap continues to increase - it more than doubled in the past 20 years - our evidence supports the view that at least some of the recent increase in productivity growth is sustainable.

Keywords: Quality-adjusted prices, growth accounting, skill premium

JEL Classification: D24, O47

Suggested Citation

Cummins, Jason Gustav and Violante, Giovanni L., Investment-Specific Technical Change in the Us 1947-2000: Measurement and Macroeconomic Consequences (January 2002). Board of Governors of the Federal Reserve System FEDS No. 2002-10. Available at SSRN: https://ssrn.com/abstract=299675 or http://dx.doi.org/10.2139/ssrn.299675

Jason Gustav Cummins (Contact Author)

Brevan Howard Asset Management LLP ( email )

London, SW1Y 6XA
United Kingdom

Giovanni L. Violante

New York University, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-992-9771 (Phone)
212-995-4186 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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