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Evidence of induced innovation in US sectoral Capital´s shares

Andrew Young (), Hernando Zuleta () and Andrés F. García-Suaza ()
Authors registered in the RePEc Author Service: Andres Garcia-Suaza ()

Documentos de Trabajo from Universidad del Rosario

Abstract: We use annual data on capital´s share and relative factor prices from 35 US industriesfrom 1960 to 2005 to test the induced innovation hypothesis. We derive, from a productionfunction framework, testable implications for the effect of contemporaneous and lagged factorprice ratios on capital´s share of production. The predicted effect is positive or negativedepending on the elasticity of substitution between labor and capital. From panel regressions, theestimated effect of the contemporaneous factor price ratio implies an elasticity of substitutionthat is less than unity, consistent with the consensus from the literature. Based on this, ournegative estimated effects for lagged price ratios are both statistically significant and consistentwith the induced innovation hypothesis.

Keywords: induced innovation; biased technical change; capital´s share; labor´s share; elasticityof substitution (search for similar items in EconPapers)
JEL-codes: E23 E25 O31 O47 (search for similar items in EconPapers)
Pages: 27
Date: 2010-03-06
New Economics Papers: this item is included in nep-bec and nep-ino
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