Estimation of Resource-Specific Technological Change in a Production Function

Abstract

Technological change plays a critical role in economic growth. Prevailing approaches to estimation of total technological change are associated with total factor productivity (TFP) based on a Cobb-Douglas (CD) production function. To estimate resource-specific technological change, previous studies typically assume an alternative specific functional form other than a CD function such as a transcendental logarithmic (translog) or a Constant Elasticity of Substitution (CES) function. In this article, we argue that under certain conditions, a resource-specific technological change can be estimated from observed resource intensity/productivity data over time, irrespective of which functional form is adopted. We also illustrate that if the estimated technological change is applied to a CD production function, the estimated resource elasticities can differ considerably from that estimated by the prevailing TFP approach. In our case of a panel data for 40 regions 1995-2009, our approach shows that a CD function is plausible across regions compared to the TFP approach.