Demand-driven Technical Change and Productivity Growth: Theory and Evidence from the US Energy Policy Act

Giammario Impullitti, Richard Kneller and Danny McGowan

No 2017/03, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: We study how demand shocks affect productivity by provoking technical change. Our model shows that increasing demand leads to technical change and productivity improvements through a direct market size effect and an indirect competition effect. We test the predictions using a natural experiment in the US corn industry where changes to national energy policy created exogenous increases in demand. Estimates show that the increase in demand caused technical change as corn producers adopted new technologies which in turn raised productivity by 5.7% per annum in the five years after the policy change. Although both channels are found to motivate technical change, the economic magnitude of the direct effect substantially outweighs the indirect effect.

Keywords: demand; market size; technical change; productivity (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-eff and nep-ene
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Journal Article: Demand‐Driven Technical Change and Productivity Growth: Theory and Evidence FROM the Energy Policy Act (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:17/03

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