Mattalia, Claudio

English

Institutional Research Information System University of Turin

    This is an author version of the contribution published on: Questa è la versione dell’autore dell’opera: Mattalia Claudio, “Embodied Technological Change and Technological Revolution”, in “Atti del XXXIV Convegno AMASES”, Università degli Studi di Macerata, 2010 Embodied Technological Changeand Technological RevolutionClaudio Mattalia (Università di Torino)1 IntroductionAt the beginning of 2000s the sector of Information and Communication Technologies(ICT) has been considered of fundamental importance in the explanation of the economicperformance of several countries.The analysis of the data shows that labour productivity growth continued to improveover the 1990s (in effect in the US the average growth of 2% per year over the decade1990-2000 has been determined by an average growth of 1.3% per year in 1990-95 andof 2.5% per year in 1995-2000) and that multi-factor productivity has been characterizedby a structural improvement from the 1980s to the 1990s. In particular, the strong pro-ductivity growth registered in the computer sector (i.e. in the production of hardware)has led some analysts to conclude that the era of a “New Economy” has begun, a sort of“Third Industrial Revolution” in which information and communication technologies canbe compared with the great inventions of the past that characterized the traditional In-dustrial Revolution. On the other hand, more sceptic analysts consider this phenomenonas nothing more than a stock market bubble, whose economic benefits will in the end beof negligible importance.For all these reasons a great attention has been devoted, both from an empirical andfrom a theoretical point of view, to the study of what has been called the “ICT Revolution”and of its effects on the economy.On the empirical side, the main studies (Gordon, 1999, 2000; Jorgenson and Stiroh,2000; Oliner and Sichel, 2000; Whelan, 2000) outline the strong productivity growth inthe computer sector (particularly in the years 1995-1999, with an increase of about 42%per year), but evidence also problems of measurement of the real contribution of ICT tothe growth and productivity of the economy, together with the fact that the productivitygrowth in the computer sector has not been accompanied by spillovers from this sectorto the rest of the economy. Therefore, there are reasonable doubts about the long-termviability of the ICT-driven economic expansion.On the theoretical side, the most important contributions (Greenwood and Yorukoglu,1997; Greenwood et al., 1997; Greenwood and Jovanovic, 1998, 1999; Hobijn and Jo-vanovic, 1999; Jovanovic and Rousseau, 2000) underline the importance of embodiment oftechnological progress (i.e. the fact that only the new machines incorporate thelatest technological advances), but underline also the fact that the ICT revolution hasbeen accompanied by some “puzzling phenomena”. In particular, on the real side therehas been an initial strong decrease in the productivity of the whole economy (the so-called1“productivity slowdown”) immediately after the beginning of the ICT revolution (in theearly ’70s), followed only later by a rise (in the late ’90s the rise of productivity in thecomputer sector has been larger than 40% in the US).The main explanations that have been proposed are based on the idea that the initialdrop in productivity is due to an adoption period of the new technologies (because thepre-existing firms are not able to use immediately these new technologies at their fullpotential); this period is characterized by learning costs and slow diffusion (and it isprecisely in this phase that the “productivity slowdown” takes place), and it is followedby an age of maturity during which the ICT sector starts driving the whole economy.2 The modelA different view is taken by Boucekkine and de la Croix (2003), that argue the possi-bility of explaining the essential characteristics of the ICT revolution in the frameworkof endogenous growth theory (considering endogenous embodied technological progress),and to obtain indications regarding the determinants and the long term viability of anICT-driven economic expansion. In particular, they consider the effects of positive sup-ply shocks (especially in the hardware and in the R&D sectors, according to the recentempirical literature of the digital revolution), and they find that only a positive produc-tivity shock in the R&D sector has long term growth effects (while a similar shock in thecapital sector is unable to produce similar effects). As a consequence, only if the ICT-driven growth episode is based on an increase in the productivity of R&D it is possible toconclude that this expansion is likely to have permanent effects in the economy.The model presented in this paper is based on the contribution of Boucekkine and dela Croix, and tries to explain some characteristics of the ICT revolution that emerge fromthe data, in particular the behaviour of output growth as a consequence of productivityshocks linked to the introduction of new technologies. It is a multi-sectoral endogenousgrowth model (of Romer’s type, 1990, in order to capture the R&D effort of the firmsoperating in the ICT sector) and it reproduces some of the essential characteristics of theICT-based economy, in particular the embodied nature of technological progress (sincethe technological innovations that characterize the ICT sector are typically embodied inthe new capital goods), the preeminent role of the R&D sector (since the amount ofresources devoted to research is particularly high, especially in the US), and the linkbetween innovation and market power (since ICT markets are typically non-competitive).The crucial differences of this model with respect to Boucekkine and de la Croixconcern the composition assumed for the workforce and the specification adopted forthe R&D sector. Indeed, the present model assumes a homogeneous workforce (withoutdistinguishing between skilled and unskilled workers) and the so-called “lab-equipment”specification (first introduced by Rivera-Batiz and Romer, 1991) for the R&D sector.The model considers discrete time with infinite horizon, endogenous growth and ho-rizontal differentiation and the economy consists of 4 sectors (together with the represen-tative household, that consumes, saves for future consumption and supplies labour):• the final good sector: it produces a composite good (used to consume or to invest)using efficient capital (bought from the equipment sector) and labour;2• the equipment sector: it produces efficient capital (sold to the final good sec-tor) using physical capital (hardware) bought from the final good producers andimmaterial capital (software) bought from the intermediate good producers;• the intermediate good sector: it produces immaterial capital (software), sold tothe equipment sector, using only labour;• the R&D sector: it researches for new varieties of immaterial capital, in order toexpand their range (horizontal differentiation).In this model technological progress is mainly embodied (the idea is that the newsoftwares can only be run on the most recent hardware) and the innovators have a marketpower represented by copyrights, in order to stimulate innovation (that corresponds to anexpansion in the varieties of softwares that are available) and growth. All these elementsare important to reproduce the essential characteristics of the ICT sector.The optimality conditions that hold at the equilibrium are derived, then the balancedgrowth path and the steady state are obtained, and in this way it is possible to find someanalytical results concerning the effects on growth of different shocks that can interest theeconomy. It is then possible to consider the numerical simulation of a calibrated versionof the model, that allows to obtain interesting results concerning the short run response ofthe system to the shocks and the robustness of the model. These results are also comparedwith the available data concerning the US, in order to verify the ability of the model toreproduce the real situation.3 Main resultsThe first result obtained is that the “lab-equipment” specification assumed for the R&Dsector allows growth as a consequence of productivity shocks in all sectors (final goodsector, equipment sector, intermediate good sector, R&D sector). The presence of the “lab-equipment” assumption, therefore, changes the implications of the model as a consequenceof shocks with respect to the original version, without such assumption. In the latter, infact, only a shock on the productivity of the R&D sector influences the growth of theeconomy in the long run.A second result is that, in the present model, the shocks on the productivity of the finalgood sector and on the cost of R&D on the one hand, and the shocks on the productivityof the equipment sector and of the intermediate good sector on the other hand, affectdifferently, in the short run, the economy, and influence the growth with different intensity.Interestingly, the intensity of growth, in the long run, as a consequence of these shocks islinked to the size (in terms of GDP) of the sector interested from the shock. More precisely,the effects on growth are stronger when the shocks concern the final good sector (that isvery important, in fact more than 90% of the labour force is employed in this sector) orthe R&D sector (that in this model is the true engine of growth), while they are weakerwhen the shocks concern the equipment sector or the intermediate good sector (that areless important, for instance the latter employes less than 10% of the labour force).The model also turns out to be sufficiently robust, since when some parameter issignificantly modified with respect to the benchmark case, both the qualitative and the3quantitative implications remain valid. Finally, an extension of the model that takes intoaccount the presence of learning and spillover effects is able to reproduce empirically thebehaviour of US productivity in the recent years.The general conclusion that emerges from this model is that if the ICT revolution canbe interpreted as a permanent shock on R&D or as a spillover (on the final good sector),it will have long run effects on the economy. On the contrary, if the ICT revolution isinterpreted as a shock on the equipment sector or on the intermediate good sector (i.e. asthe possibility of producing easily new softwares), it will not have strong long run effects.References[1] Boucekkine, R. and D. de la Croix (2003), “Information Technologies, Embodimentand Growth”, Journal of Economic Dynamics and Control 27, 2007-2034.[2] Gordon, R. (1999), “Has the New Economy Rendered the Productivity SlowdownObsolete?”, Mimeo, Northwestern University.[3] Gordon, R. (2000), “Does the New Economy Measure up to the Great Inventions ofthe Past?”, Journal of Economic Perspectives 14, 49-74.[4] Greenwood, J., Z. Hercowitz and P. Krusell (1997), “Long-Run Implications ofInvestment-Specific Technological Change”, American Economic Review 87, 342-362.[5] Greenwood, J. and B. Jovanovic (1998), “Accounting for Growth”, NBER WorkingPaper 6647.[6] Greenwood, J. and B. Jovanovic (1999), “The IT Revolution and the Stock Market”,American Economic Review Papers and Proceedings 89, 116-122.[7] Greenwood, J. and M. Yorukoglu (1997), “1974”, Carnegie-Rochester Conference Se-ries on Public Policy 46, 49-95.[8] Hobijn, B. and B. Jovanovic (1999), “The Information Technology Revolution andthe Stock Market: Preliminary Evidence”, Mimeo, New York University.[9] Jorgenson, D. and K. Stiroh (2000), “Raising the Speed Limit: US Economic Growthin the Information Age”, Brookings Papers on Economic Activity 1, 125-212.[10] Jovanovic, B. and P. Rousseau (2000), “Accounting for Stock Market Growth: 1885-1998”, Mimeo, New York University.[11] Oliner, S. and D. Sichel (2000), “The Resurgence of Growth in the Late 1990’s: IsInformation Technology the Story?”, Journal of Economic Perspectives 14, 3-22.[12] Rivera-Batiz, L. and P. Romer (1991), “Economic Integration and EndogenousGrowth”, Quarterly Journal of Economics 106, 531-555.[13] Romer, P. (1990), “Endogenous Technological Change”, Journal of Political Economy98, 71-102.[14] Whelan, K. (2000), “Computers, Obsolescence and Productivity”, Mimeo, FederalReserve Board, Division of Research and Statistics.4

Embodied Technological Change and Technological Revolution

https://iris.unito.it/bitstream/2318/85327/1/Abstract%20open%20access.pdf

Embodied Technological Change and Technological Revolution

Abstract

Similar works

Full text

Available Versions

Institutional Research Information System University of Turin