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The effect of technology and demand shocks on structural and industrial dynamics: Evidence from Austrian manufacturing

Werner Hölzl () and Andreas Reinstaller ()

Working Papers from Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness

Abstract: In this paper we analyse the influence of sector specific developments in productivity and demand on net entry and employment in 19 industrial sectors of the Austrian economy. Based on the model of structural dynamics of Pasinetti, we develop an identification scheme that allows us to extract technology and demand shocks, by means of a structural vector autoregressive (SVAR) model with long-run restrictions. We study the patterns of productivity and demand shocks across industries by means of a principal components analysis and find that sectoral and macro-economic developments in demand strongly correlate, while this is not the case for technology shocks. Impulse-response analysis shows that for almost all sectors productivity growth rates experience an immediate increase to positive technology shocks while the hours worked decline as conjectured by Pasinetti. Finally, we use the identified shocks as explanatory variables in time-series cross-section regressions on net-entry and employment data. Both types of shocks are able to explain dynamics on the industry level in terms of employment and sales but not firm dynamics.

Keywords: Industrial dynamics; structural change; technology shocks; demand shocks; entry and exit; employment (search for similar items in EconPapers)
JEL-codes: D24 E13 L16 O31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino
Date: 2004-06
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