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Evidence of Induced Innovation in US Sectoral Capital’s Shares

Andrew Young (), Hernando Zuleta () and Andres Garcia-Suaza ()

No 10-03, Working Papers from Department of Economics, West Virginia University

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

Keywords: induced innovation; biased technical change; capital’s share; labor’s share; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: E23 E25 O31 O47 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010
New Economics Papers: this item is included in nep-bec and nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:wvu:wpaper:10-03

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