A Fairytale Ending Or The Same Old Story? The New Economy and Economic Growth in the United States

Nigel Pain

No 153, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper uses a production function approach to put the recent contribution of the New Economy to US economic growth into perspective by undertaking an analysis of the sources of technical progress in the business sector over the post-war period. We model jointly a pair of factor demand equations derived consistently from an underlying CES production technology, and explicitly endogenise technical progress. Knowledge accumulation via R&D and education are found to be the main sources of technical progress, but there is evidence of significant structural change after 1995 which can be removed by allowing for externalities from investment in information processing equipment and software. Labour augmenting technical progress is estimated to be over 2 per cent per annum faster since 1995 than can otherwise be explained.

Date: 2002-08-29
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