Induced Innovation with Endogenous Growth in Agriculture: A Case of Japanese Rice Production

Abstract

An endogenous growth mechanism of productivity is incorporated into a neoclassical induced innovation model. The time-series-based econometric analysis on Japanese rice production provides evidence supporting the technological change process of learning-by-doing and technological spillover. The learning-by-doing effect is confirmed by cointegration between the capital and the total factor productivity (TFP), and the technological spillover effect is confirmed by the Granger-causality tests for the TFP of large-scale producers and that of small-scale producers. The cointegrating relationship between capital and labor series shows the presence of a long-run growth path in production. The error correction model of the production function illustrates the endogenous technological change process. Presence of the externality in innovation implies that a capital-intensive technology is likely to be created. Improvement in product quality is indirectly induced by diminishing returns to capital and it also has a spillover effect, so that it may also be regarded, in a broad sense, as a part of the endogenous innovation effect.