Research and development and labour productivity: do high-tech firms exhibit labour- or capital-saving technical change?

Employment and output in the advanced technology sectors have generally exhibited above-average growth for more than two decades. While this industry accounts for a relatively small share of total employment, the majority of private sector research and development (R&D) expenditures in the US is concentrated within seven sub-sectors. However, little attention has been paid as to whether high-tech productivity exhibits Hicksian capital or labour ‘savings’ bias or tendency to displace either factor input over time. Biased technical change can occur as economies transition between growth regimes. An augmented production function is employed to analyse the additional impact of R&D activity on firm-level labour productivity. A panel data set comprised of high-tech firms located across the advanced economies, China and India from 1990 to 2013 is used in the analysis. Labour-saving technical change was present across the advanced technology sectors and most countries. The expanded models of labour productivity that used fixed effects with lagged regressors confirmed the prior results as well as finding that R&D per employee, relative R&D intensity and firm market share contribute to firm-level labour productivity growth across countries and sectors. Additional support was found for diminishing returns to scale but not for R&D spillover effects.     

Public capital,productivity and trade balances: some evidence for the Italian regions

This paper analyses the extent to which intensive investments in public capital may have had an unfavourable impact on the regional trade balances across the 20 Italian regions. Our working hypothesis is that investments in public capital, while stimulating the demand for tradables across the regions, may have a limited positive impact on the supply of tradables in regions characterised by relatively low productivity like the South of Italy (or Mezzogiorno). The empirical results are consistent with our expectations and suggest that programs of investments in public capital should be accompanied by additional policy measures that can remove the structural factors that hamper the total factor productivity growth in specific areas.     

Structural Change and Economic Growth in China

This study develops a new analytical framework to account for sources of rapid economic growth in China. The traditional Solow approach is expanded to include another source of economic growth—structural change. The empirical results show that structural change has contributed to growth significantly by reallocating resources from low‐productivity sectors to high‐productivity sectors. It is found that the returns to capital investment in both agricultural production and rural enterprises are much higher than those in urban sectors, indicating underinvestment in rural areas. On the other hand, labor productivity in the agricultural sector remains low, a result of the still large surpluses of labor in the sector. Therefore, further development of rural enterprises and an increase in labor flow among sectors and across regions are key to improvements in overall economic efficiency.     

FACTOR DETERMINANTS OF TOTAL FACTOR PRODUCTIVITY GROWTH FOR THE JAPANESE MANUFACTURING INDUSTRY

This study uses industrial panel data for Japanese manufacturing to estimate the sources of productivity growth by simultaneously considering embodied technical progress, spillover effects, and openness, after controlling for returns to scale, imperfect competition, and capacity utilization. Estimation results show the existence of considerable embodied technical progress and interindustry externalities of capital investments positively affecting productivity growth. Furthermore, embodied technical progress causes research and development (R&D) capital to affect productivity growth insignificantly, suggesting that the impact of R&D is realized only after being embodied into other capitals. From sector‐wise estimations, we notice differences in factors affecting productivity growth between the durable and nondurable manufacturing sectors. (JEL D24, O30)     

Endogenous technological progress in a multi-sector growth model

This paper presents an endogenous growth model driven by human capital, where human capital can be allocated across three sectors: the production of the final consumption good, the educational sector and the production of technological capital (in the form of knowledge or ideas). In our model, which also includes public expenditure and population growth, labor augmenting technical progress is endogenous and this enriches the transitional dynamics of the economy. With respect to ideas-based growth models, we assume knowledge is produced according to a neoclassical technology, combining ideas and human capital. Such an assumption is motivated by empirical works showing the existence of significant decreasing returns in the creation of ideas at the aggregate level (as Kortum, 1993; and Pessoa, 2005) and of the weak relationship between some inputs of the knowledge production process (as the number of researchers) and the total factor productivity growth rate (as Jones, 2002). Under some general conditions, this economy exhibits the existence of a steady state equilibrium and an unstable multidimensional manifold. Numerical examples are provided to show the existence of stable arms.     

Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction,with reference to Spain

In this article, we examine whether variations in the level of public capital across Spain's Provinces affected productivity levels over the period 1996 to 2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy (‘industry’) which includes the level of composite services derived from ‘service’ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.     

Public capital formation and labor productivity growth in Chile

Following the lead of the endogenous growth literature, this article analyzes the impact on labor productivity growth of public and private investment spending in Chile. Using cointegration analysis, the results of the dynamic labor productivity function for the 1960–95 period show that (lagged) public and private investment spending, as well as the rate of growth in exports, has a positive and highly significant effect on the rate of labor productivity growth. The estimates also indicate that increases in government consumption spending have a negative effect on the rate of labor productivity growth, thus suggesting that the composition of government spending may also play an important role in determining the rate of labor productivity growth. The findings call into question the politically expedient policy in many Latin American countries of disproportionately reducing public capital expenditures to meet targeted reductions in the fiscal deficit as a proportion of GDP.     

What determines productivity performance of telecommunications services industry? A cross-country analysis

This article investigates the key factors that determine the productivity performance of telecommunications services industry. A simple theoretical model is used to illustrate that the Total Factor Productivity (TFP) growth is attributable to the effects of scale economies, market competition and technical change. We then examine empirically the effect of various factors on the TFP growth in the industry using panel data in 12 Organization for Economic Co-operation and Development (OECD) countries for the period 1983 through 2003. The empirical results are consistent with the theoretical prediction. A new finding in this article is that higher machinery and equipment (M&E) capital intensity and human capital contribute to higher TFP growth in the telecommunications services industry. The decomposition analysis also suggests that technical change induced by changes in M&E capital intensity and human capital are important sources of productivity performance in the industry across the OECD countries, contributing to about 20–50% and 2–7% of TFP growth, respectively. These findings highlight the importance of improving the conditions for M&E capital investment and the quality of human capital, which in turn could facilitate the adoption of new technologies and enhance the productivity in the industry.     

Three levels of education and the economic growth

The aim of this article is to solve the question how the three main stages of education contribute to the labour productivity growth in selected 125 countries in the period 1999–2014. The model is based on the neoclassical production function enhanced with human capital. The authors draw on the Penn World Tables 9.0 and UNESCO databases. The key benefit of this article is that human capital is characterized according to the returns to education from average number of years of formal schooling at the primary, secondary and tertiary level. Based on the panel data analysis, the contributions of capital and of the three levels of education to the growth of labour productivity are estimated. At the same time, the model allows to estimate the contribution of total factor productivity. The results of the analysis show that tertiary education has the strongest impact on labour productivity across the considered economies. At the same time, the breakdown of aggregate human capital by level of education leads to better clarification of the effects of human capital and physical capital on labour productivity. The conclusions also indicate a tendency towards rising returns to scale induced by the secondary and tertiary education.     

Reconciling Kuznets and Habbakuk in a unified growth theory

Economic historians have debated the relative labor productivity of the United States agricultural and nonagricultural sectors during the nineteenth century. David (Discussion papers in economic and social history, University of Oxford, 1996) offers a reconciliation of the opposing views by suggesting that while productivity per hour worked in agriculture was comparable to productivity in other sectors, the number of hours worked per year was relatively low, creating a large gap in annual output per worker across sectors. We model and extend a version of Davis’s reconciliation within a unified growth theory that makes connections between the decline in traditional agriculture and several other features of United States development. The dynamic general equilibrium model is consistent with the structural transformation having minor direct and indirect effects on aggregate labor productivity per hour, but substantial effects on aggregate labor productivity per worker. The model also provides a close match to the trends in schooling, fertility, rates of return to physical capital, and labor productivity growth in the nineteenth century.      

Trade-mediated biotechnology transfer and its effective absorption: an application to the U.S. forestry sector

In this paper, we analyze the consequences of biotechnology innovations in the United States forest sector (logging) by modeling technology transfer embodied in trade flows and its absorption. A seven-region, seven-traded-commodity version of a dynamic computable general equilibrium model is used to achieve this task. A 0.63% Hicks-neutral biotechnological progress in the source region (U.S.) has differential impacts on the productivity of the log-using sectors in the domestic as well as in the recipient regions. Since recipient regions' ability to utilize biotechnology innovations depends on their absorptive capacity (AC) and structural similarity (SS), we construct the AC and SS indices based on multiplicity of factors such as human capital endowments, skill content and social appropriateness of the new innovations. The model results show that biotechnological innovations in the U.S. forest sector result in a significant increase in timber production. Following the productivity improvements and its embodied spillover, wood products and pulp and paper sectors in the U.S. register higher productivity growth. The role of AC and SS in capturing technical change is shown to be evident. In the face of growing regulations on timber production from public forests, increasing productivity through biotechnology may be the most effective way to meet the consumer demand for forest products.     

Innovation spending and productivity growth in the German economy 1980–1986

A newly developed technique involving vertically integrated input-output sectors is used to examine the relationship between labour productivity and innovation expenditures in the German economy during the period 1980 to 1986. The productivity measures used, dubbed Harrod-Robinson-Read (HRR), take into account the direct and indirect labour used in each consumption goods sector. Included in these measures is the labour content of new capital investment.

The HRR measures show higher rates of productivity growth in most sectors, compared to the simple direct labour requirements measures. This is due to the fact that the HRR measures take into account the increased efficiency with which new capital is produced. The second part of the study examines the relationship between labour productivity and innovation expenditures as measured by the IFO (Institute for Economic Research – Munich) innovation survey. Using cross section data for 58 German industries, a strong correlation was found between direct labour productivity growth and direct innovation expenditure.

These results suggest that with more detailed capital expenditure data it should be possible to describe more precisely the relationships between innovation activity, spending on new capital, and productivity changes. The key to examining these relationships in more detail is the growing wealth of information contained in recent innovation surveys such as those done by the IFO.     

R&D, Human Capital and International Technology Spillovers: A Cross-country Analysis

This paper is based on recent developments in the theory of innovation-driven growth that emphasize both the importance of R&D efforts — domestic as well as foreign — for explaining national productivity, and the complementarity between R&D and human capital investments. Estimates of specifications, in growth terms and in level terms, on a cross-section of OECD countries from the early 1960s to the early 1990s lend strong support to this thesis. The data show a significant influence of both domestic and foreign R&D. Moreover, there is clearly a net positive impact of human capital. The level and growth rate of human capital are shown to affect productivity growth and there is evidence of interaction with the catch-up process.
JEL classification: O 33; O 47     

Privatization and economic growth in Australia: the shorthand of a long process

The impact of privatization on economic growth has been little investigated relative to disaggregated approaches. A growth accounting framework is used here to investigate the impact of privatization on growth for the Australian economy. The contribution of public capital to the private sector and whether the growth process is endogenous or Solow is evaluated. Separate measures of public and private capital are computed in order to estimate their impacts with labour on Australian gross domestic product (GDP) growth for the period 1960 to 2003. A simple growth rates version is found preferred by stationarity and other tests. Labour growth appears to strongly positively influence the growth of GDP. In contrast, public capital growth has no statistically significant effect on GDP growth, or on private capital productivity. The data are consistent with the hypothesis that the coefficients of the growth equation are the same before and during privatization.     

Research and development,productive structure and economic effects: Assessing the role of public financing in Brazil

Investments in research and development (R&D) have played a key role in promoting productivity improvements and economic growth. This paper explores the economics effects of public R&D investment funding in Brazil, taking into account the changes in total factor productivity (TFP) in high-, medium- and low-technology sectors. Public funding plays an important role in the development of R&D activities in Brazil and its participation has increased since 2010. Our paper simulates a withdrawal of R&D investments and TFP linked to public financing from an R&D-based computable general equilibrium (CGE) model, which recognizes the stock-flow relation between R&D investment and knowledge capital. Without public R&D investment funding, the main findings indicate losses in TFP, adverse effects on the formation of physical capital, shrinkage of more intensive R&D industries, and more future dependence on the public sector for knowledge stock, especially for education.     

On using relative prices to measure capital-specific technological progress

Recently, Greenwood, Hercowitz and Krusell (GHK) have identified the relative price of (new) capital with capital-specific technological progress. In a two-sector growth model, however, the relative price of capital equals the ratio of the productivity processes in the two sectors. Restrictions from this model are used with data on wages and prices to construct measures of productivity growth and test the GHK identification, which is easily rejected by the data. This raises questions about various measures of the contribution that capital-specific technological progress might make to the economy. This identification also induces a negative correlation between the resulting measures of capital-specific and economy-wide technological change, which potentially explains why papers employing this identification find that capital-specific technological change accelerated in the mid-1970s. We impose structure on the productivity measures based on their long-run behavior and find evidence of a slowdown in productivity in the 1970s that is common to both sectors and an acceleration in the mid-1990s that is exclusive to the capital sector.     

Efficiency change,technological change and capital accumulation in Italian regions: a sectoral study

This paper examines the sources of labour productivity in the Italian regions during the period 1980–2004. Five economic sectors are investigated using data envelopment analysis (DEA) and taking into account productive specialisation and sector inefficiencies. Labour productivity change is decomposed into five components by means of Malmquist productivity indices: intra-sector efficiency change, composition efficiency change, input-biased technical change, magnitude component technical change and capital accumulation. Using bootstrap procedure, the components of labour productivity changes are statistically tested. Efficiency analysis shows that productive specialisation is not a source of inefficiency and efficiency gains can be obtained by sector-specific policies. Thus, it is possible to obtain improvements in efficiency in each sector of activity rather than reallocating resources among sectors. The results of the decomposition by sectors reveal heterogeneous sources of growth. The total economy has shown evidence of non-neutral technical change and, it has been found that agriculture, industry and construction experienced capital using technical change. The analysis of the decomposition of the labour productivity growth is complemented by an analysis of β-convergence.     

Optimal Growth with Endogenous Technical Progress: Hicksian Bias in a Macro Model

If productivity growth is endogenous, the question of whether to allocate some resources to increase the efficiency of capital needs to be examined in spite of the conventional wisdom that only Harrod-neutral technical progress is compatible with the steady state. This paper describes the crucial role that the production technology and research sectors play in determining the allocation of resources for accumulating physical capital and enhancing the productivity of inputs. We develop a model of biased growth, where, even in the steady state, the efficiency of capital and labour are increasing due to the allocation of resources to the research sector.
JEL Classification Numbers: C62, O31.     

Technology,Growth and Employment

The relationship between technology, productivity and employment is a complex one. Increased productivity can lead not just to increased market share, but through falling relative prices can help expand markets, and through product innovation can develop new markets. On the other hand, if demand and hence output does not expand in line with productivity, then an inverse relation between productivity and employment will result. The European Union seeks to improve living standards in Europe by boosting productivity, competitiveness and employment together. How, though, is this to be achieved? This paper looks at the effects on productivity of different forms of investment--in physical capital, in Research & Development, and in human capital. The paper also distinguishes between the high-tech and low-tech sectors. There does appear to be scope for boosting both productivity and employment, particularly in the high tech sectors. But to do so will require increased investment across all three categories--in machinery, in innovation and in people.