Ideas, Idea Processing, and TFP Growth in the US: 1899 to 2019

67 Pages Posted: 29 Jul 2022

See all articles by Kevin R. James

Kevin R. James

London School of Economics & Political Science (LSE) - Systemic Risk Centre

Akshay Kotak

Systemic Risk Centre, LSE

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall

Date Written: July 13, 2022

Abstract

Innovativity - an economy's ability to produce the innovations that drive total factor productivity (TFP)  growth - requires both ideas and the ability to process those ideas into new products and/or techniques. We model innovativity as a function of endogenous idea processing capability subject to an exogenous idea supply constraint and derive an empirical measure of innovativity that is independent of the TFP data itself. Using exogenous shocks and theoretical restrictions, we establish that: i) innovativity predicts the evolution of average TFP growth; ii) idea processing capability is the binding constraint on innovativity; and iii) average TFP growth declined after 1970 due to a constraints on idea processing capability, not idea supply.

Keywords: Innovation, Financial Market Effectiveness, Endogenous Growth, Total Factor Productivity

JEL Classification: O44, O43, O47, O16, O51, O31

Suggested Citation

James, Kevin Roger and Kotak, Akshay and Tsomocos, Dimitrios P., Ideas, Idea Processing, and TFP Growth in the US: 1899 to 2019 (July 13, 2022). Available at SSRN: https://ssrn.com/abstract=4161964 or http://dx.doi.org/10.2139/ssrn.4161964

Kevin Roger James (Contact Author)

London School of Economics & Political Science (LSE) - Systemic Risk Centre ( email )

Houghton St
London
United Kingdom

Akshay Kotak

Systemic Risk Centre, LSE ( email )

Houghton St London WC2A 2AE United Kingdom

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288 932 (Phone)
+44 1865 288 805 (Fax)

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