 Non-homothetic preferences and industry directed technical changeTimo Boppart and Franziska Weiss () No 123, ECON - Working Papers from Department of Economics - University of Zurich Abstract: Sectoral data features (i) changing relative expenditures of different sectors, (ii) non-constancy in relative prices and (iii) long-run trends in relative TFP growth rates across sectors. We provide a tractable theory of industry directed technical change, which is able to reconcile these findings. In doing so, this paper emphasizes the importance of directed technical change, nonhomotheticity of preferences and structural change as a long-run phenomenon. Using the input-output tables of the U.S., our theory helps us to reconstruct how structural change in terms of final consumption affects the market size of industry value-added. Arguing that the structural change across broad categories of final consumption is exogenous from the perspective of an individual firm, this gives us an instrument for the industrial market size (at the valueadded level). We then empirically test for the market size effect of induced innovation. Our findings suggest that a 1 percent increase in an industry’s market size (relative to GDP) leads to an increase in the TFP growth rate of about 0.3 percentage points over five years. Keywords: Directed technical change; structural change; non-homothetic preferences; input-output tables; market size effect (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:123 Access Statistics for this paper More papers in ECON - Working Papers from Department of Economics - University of Zurich Contact information at EDIRC. |
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