Technological Progress and Sectoral Shares

Gamal Atallah and Aggey Semenov

No 1610e, Working Papers from University of Ottawa, Department of Economics

Abstract: This paper studies the effect of differences in the rate of technological progress between sectors on the relative sizes of those sectors in terms of revenues. There are two sectors: a stagnant sector, where productivity does not change over time, and a progressive sector, where costs decrease over time due to exogenous technological progress. We consider a conjectural variation approach to competition in the progressive sector which encompasses perfect competition, Cournot oligopoly and monopoly. The main result of the paper is that the share of the stagnant sector increases over time when demand in the progressive sector is inelastic. Under perfect competition, when initial production costs in the progressive sector are sufficiently low (so that demand is inelastic), the share of the stagnant sector rises over time. Whereas, when initial production costs are sufficiently high (so that demand is elastic), the relative size of the stagnant sector is U-shaped with respect to time. Under monopoly, the share of the stagnant sector always decreases over time. However, the decline in that share is much more rapid the higher are initial costs in the progressive sector. The interaction of market structure and price elasticity (or initial costs) determines how the relative sizes of sectors differing in productivity growth evolve over time. The relationship with the cost disease literature is discussed.

Keywords: Cost decrease; productivity growth; sectoral shares; cost disease (search for similar items in EconPapers)
JEL-codes: D24 D41 D42 L11 O33 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2016
New Economics Papers: this item is included in nep-com, nep-eff and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Technological Progress and Sectoral Shares (2018)
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