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

42 Pages Posted: 7 Sep 2017 Last revised: 29 Apr 2020

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: 2017-07-31

Abstract

We extend the conventional Solow growth accounting model to allow innovation to affect 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 the produced 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 “output-saving� technical change, in contrast to the Solow TFP “resource-saving� technical change. One implication of our model is that living standards can rise at a greater rate than real GDP growth.

Keywords: consumers, accounting, consumer welfare, GDP

JEL Classification: E01, O3, O4

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 (2017-07-31). FRB of Philadelphia Working Paper No. 17-24, Available at SSRN: https://ssrn.com/abstract=3029757

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
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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)

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