Identifying the sector bias of technical change

Thomas Brasch ()
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Thomas Brasch: Statistics Norway

Empirical Economics, 2016, vol. 50, issue 2, No 14, 595-621

Abstract: Abstract The empirical literature studying the sector bias of technical change has only focused on skill-biased technical change. In this paper, I analyse the sector bias of both factor-neutral and factor-biased technical change. In Norwegian data from 1972 to 2007, the empirical evidence is not clear on the impact of a sector bias of skill-biased technical change, but it points to a sector bias of factor-neutral technical change from the 1970s to the 1990s. That said, the impact of the sector bias seems to have reduced towards the latter part of the sample period. I also evaluate the cross-sectional model used in the literature and show the strong restrictions that must be placed on a vector equilibrium correction model to end up with the standard model. If these restrictions do not hold, the results reported in the literature may be biased. I show that the restrictions are strongly rejected, and that erroneously imposing them significantly changes the estimates of skill-biased technical change in many sectors. These results can, to some extent, be traced back to how the cross-sectional model ignores initial disequilibrium and imposes factors of production to be either complements or substitutes.

Keywords: Econometric modelling; Technical change; Sector bias; C5; J3; O3 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-015-0938-7

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