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
Date Written: 2017-07-31
We extend the conventional Solow growth accounting model to allow innovation to affect consumer welfare directly. Our model is based on Lancasterâ€™s New Approach to Consumer Theory, in which there is a separate â€œconsumption technologyâ€� 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 â€œoutput-savingâ€� technical change, in contrast to the Solow TFP â€œresource-savingâ€� 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: Suggested Citation