Ideas, idea processing, and TFP growth in the US: 1899 to 2019

Kevin R. James, Akshay Kotak and Dimitrios Tsomocos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Innovativity – an economy's ability to produce the innovations that drive total factor productivity (TFP) growth – requires both ideas and the ability to process those ideas into new products and/or techniques. We model innovativity as a function of endogenous idea processing capability subject to an exogenous idea supply constraint and derive an empirical measure of innovativity that is independent of the TFP data itself. Using exogenous shocks and theoretical restrictions, we establish that: i) innovativity predicts the evolution of average TFP growth; ii) idea processing capability is the binding constraint on innovativity; and iii) average TFP growth declined after 1970 due to a constraints on idea processing capability, not idea supply.

Keywords: innovation; financial market effectiveness; endogenous growth; total factor productivity (search for similar items in EconPapers)
JEL-codes: O16 O31 O47 O51 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2022-07-13
New Economics Papers: this item is included in nep-eff, nep-fdg and nep-his
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