Neutral Technical Change Research Articles

Technical Change, Technical Efficiency, and Their Impact on Input Demand in the Agricultural and Manufacturing Sectors of Pakistan

Technical change has been considered as one of the most important determinants of economic growth. In developed economies, a proportionately higher percentage of GDP growth is attributable to technological progress and technical efficiency. However, technical change in developing countries is in its early stages and increased use of factor inputs is still the dominant source of economic growth. An attempt has been made in this paper to analyse technological progress and technical efficiency and their contribution to economic growth along with other factors of production by using more efficient methods in the manufacturing and agriculture sectors of Pakistan. There are a few studies on technological growth and technical efficiency change in Pakistan but they suffer from certain limitations. Most of them use the terms of technical change and productivity synonymously. Further, all of them use Hicks’s formula of neutral technical change and assume that technical change is happening at a constant rate. We have attempted to measure technical change, technical efficiency, and productivity in the form of the Hicks neutral technical change as well as in the form of variable and continuous and discrete technical change. Besides, this paper also analyses the impact of technical change on input demand (i.e., its impact on labour and capital demand) and examines the issue of technical change being either labour-saving or capital-saving. We found that technical change was taking place at a continuous and variable rate. The major contributor to the growth of output and value-added in both sectors was capital, contributing over 50 percent. Labour share was about 20 percent in the agriculture sector and about 10 percent in the manufacturing sector. Technical change share was very significant in manufacturing but not so in agriculture. The manufacturing sector in Pakistan has grown at an annual rate of about 6 percent during 1970s and at 8.7 percent during 1980s, and its share in GDP has increased from 16.5 percent to about 19 percent, but it has failed to generate new employment opportunities for the labour force. The employment growth rate is only about 2 percent.

Trade barrier decrease and environmental pollution improvement: new evidence from China’s firm-level pollution data

PurposeTrade and environment are essential issues closely related to the development of the national economy and the improvement of people’s livelihood in the new era. The Report to the 19th National Congress of the Communist Party of China (CPC) listed the construction of a strong trading power as an important part of building a modern economic system and pollution prevention and treatment as one of the three key battles to win the decisive victory of building a moderately prosperous society in all respects. However, the relationship between trade and environmental pollution is still very controversial in the existing literature, and there is a paucity of literature on the relationship between trade and environmental pollution based on micro data.Design/methodology/approachThis paper merged China’s Firm-Level Pollution Database with China’s Industrial Enterprise Database and China’s industry tariff rates. Additionally, by virtue of the quasi-natural experiment of China’s accession to the World Trade Organization (WTO), a difference in difference (DID) model was constructed to alleviate the endogeneity issue.FindingsAccording to the results, the trade barrier decrease (trade liberalization) significantly reduces the intensity of SO2 emissions, a major pollutant of enterprises, as the intensity of SO2 emissions decreased 2.16% for each unit decrease of the trade barrier. The analysis of the mechanisms shows that the SO2 emission intensity of enterprises is mainly due to the decrease of enterprises’ pollution emission rather than the decrease of output, and the decrease of enterprises’ pollution emission is mainly caused by the enterprises’ cleaner production process rather than the end treatment of pollution emission. The decrease of coal use intensity is an important mechanism of the decrease of SO2 emission intensity caused by the decrease of trade barriers. Among the technical effects of the change of the trade barrier affecting enterprises’ pollution emission, biased technical change rather than neutral technical change dominates.Originality/valueThe findings of this paper imply that expanding openness can enhance China’s social welfare not only through the economic growth mechanisms identified in the classical literature, but also through environmental improvements. This provides useful policy insights for promoting the construction of a strong trading power and winning the battle against pollution in the new era.

Carbon emission intensity and biased technical change in China's different regions: a novel multidimensional decomposition approach.

The decomposition analysis has been employed to discover the driving factors of carbon emission intensity, but the current studies assume that production functions are under the condition of the neutral technical change. Grounded on biased technical change production theory, this paper proposes a novel multidimensional decomposition approach which combines production-theory decomposition analysis (PDA) and index decomposition analysis (IDA). This novel approach can illustrate how energy structure effect, element substitution effect, efficiency change effect, input biased technical change, output biased technical change and magnitude of technical change affect carbon emission intensity of China's 30 provinces. The results indicate that during the 11th FYP and 13th FYP, output biased technical change and the magnitude of technical change are the critical factors in China's carbon emission intensity, while other four drivers increase carbon emissions. But, during the 12th FYP, the role of six drivers has been reversed contrasting 11th FYP and 13th FYP. In addition, we also explore the impact of each driver from the perspective of regional heterogeneity.

A general equilibrium model of macroeconomic rebound effect: A broader view

Economists recognize that energy efficiency improvements generate behavioral responses that reduce potential energy savings (rebound effect) and may even increase energy consumption (backfire). Much work has been done to explain rebound economics. Nevertheless, many of the important issues still do not have a clear answer, that is, under which circumstances the rebound is more powerful or weaker and whether the long-run effect is greater or less than the short-run effect. Furthermore, it is still unclear in which situations backfire is definitely a problem. In order to answer these questions, the article expands the Wei (2010) general equilibrium model, including any number of energy services and non-energy inputs and endogenizing the output price. Furthermore, in order to analyze the effects of a neutral technical change on energy consumption, a parameter of non-energy inputs productivity is also included. The analysis corrects some results presented in Wei (2010) and provides several new findings. Regarding the energy-augmenting technical change, the main findings are the importance of the energy supply and the use of more than one energy service in the model for the rebound size. Moreover, in the simplest models, the long-run rebound effect is greater than the short-run effect. Regarding the neutral technical change, it is highlighted that the use of homogeneous production functions generates backfire. Moreover, we find that backfire is definitely a problem in terms of welfare only in situations where energy consumption is based on highly polluting energies and where output is highly energy-intensive.

Hicks neutrality and homotheticity in technologies with multiple inputs and multiple outputs

We analyze two popular notions in production theory: the notion of Hicks neutral technical change and the notion of homothetic technology. Both of these notions are characterized by the radial expansions or contractions of the relevant isoquants, yet in different ways. In the case of multiple-input and multiple-output, an isoquant is characterized by either the input or output combinations. Thus, for each of these notions, there are two types of conditions: one is based on the input isoquants and the other is based on the output isoquants. We show that for each notion, these two conditions are equivalent under the α-returns to scale technology. From this result, we also derive several implications for the properties of well-known productivity indexes, such as the Malmquist productivity index and the Hicks-Moorsteen productivity index.

Harrod-Neutral Technical Progress and Fluke Switch Points

This article considers Harrod-neutral technical progress in the context of an analysis of the choice of technique. In a model of the production of commodities by means of commodities, neutral technical change is compatible with the reswitching of techniques, capital reversing, process recurrence, and the reverse substitution of labor. A taxonomy of fluke switch points is applied to an example, illustrating how these phenomena can arise and vanish in the course of neutral technical progress.

Shades of Automation in the Labor Market

This paper provides supportive evidence to the recent research on the task-based trends in the structural change of the US employment. Automation takes place either through neutral technical change at the task level, or deepening of computer capital subject to steep relative price declines. Quantifying these different sources of technological change with the task data, I show that the US labor market significantly becomes more interpersonal-service oriented, and to a lesser extent, less routine-intensive.

TECHNOLOGICAL SOURCES OF ECONOMIC GROWTH IN EUROPE AND THE U.S.

This paper assesses the role of different sources of technological change as determinants of economic growth in a group of selected OECD countries during the period 1980–2010. We consider three different sources of growth: neutral technical change associated with Total Factor Productivity, investment-specific technical change (ISTC) embodied in capital assets, and improvements in the quality of labor services generated by human capital accumulation. The contribution to growth of each of these sources is computed using two different approaches: the standard (statistical) growth accounting and the structural growth decomposition obtained from a general equilibrium growth model. We found that the effect of ISTC dominates that of neutral technology and human capital in all of the countries considered. On average, more than 50% of productivity growth is explained by ISTC. Contributions to growth from ICT and non-ICT technical change are in general of similar magnitude.

Productivity indexes under Hicks neutral technical change

The Malmquist and Hicks–Moorsteen productivity indexes are the two most widely used theoretical indexes for measuring productivity growth of firms, industries and countries. We indicate that these two indexes coincide under constant returns to scale technology and Hicks neutral technical change. While the conditions on production technology under which two indexes coincide have been examined before, this is the first study on the types of technical change under which they coincide. We shed new insight on the relationship between these popular indexes.

Modeling technical change in climate analysis: evidence from agricultural crop damages.

This study accounts for the Hicks neutral technical change in a calibrated model of climate analysis, to identify the optimum level of technical change for addressing climate changes. It demonstrates the reduction to crop damages, the costs to technical change, and the net gains for the adoption of technical change for a climate-sensitive Pakistan economy. The calibrated model assesses the net gains of technical change for the overall economy and at the agriculture-specific level. The study finds that the gains of technical change are overwhelmingly higher than the costs across the agriculture subsectors. The gains and costs following technical change differ substantially for different crops. More importantly, the study finds a cost-effective optimal level of technical change that potentially reduces crop damages to a minimum possible level. The study therefore contends that the climate policy for Pakistan should consider the role of technical change in addressing climate impacts on the agriculture sector.

Directed Technical Change and Capital Deepening: A Reconsideration of Kaldor's Technical Progress Function

ABSTRACTThis note proposes a growth model that is derived from the standard Solow growth model by replacing the neoclassical production function with Kaldor's technical progress function while maintaining a marginalist theory of factor prices in the spirit suggested by von Weizsäcker. The hybrid model so obtained explains balanced growth in a way that appears less arbitrary than possible explanations in the Solow model, especially because it directly accounts for Harrod neutral technical change, without any need for further assumptions. It complements the current neoclassical and AK models by offering a further perspective for interpreting economic growth.

Some comments on Antonelli and Quatraro’s paper of measuring effect of biased technology on TFP

The paper is a response to Antonelli and Quatraro’s paper named “The effects of biased technological change on total factor productivity: empirical evidence from a sample of OECD”. We point out that “so-called novel method” which is used to identify and disentangle the effects of the direction of technological change on total factor productivity (TFP) in the article is wrongly implemented. Antonelli and Quatraro introduce Solow’s methodology as part of his basic model to represent the effect of neutral technical change, ignoring the intrinsic consequence of Solow’s calculating which called technical progress productivity is far from neutral. Hence, his methodology has little significance, neither the empirical analysis. Lastly, we give a new method measuring whether the technology is appropriate to the factor endowments’ changing. That’s the effect of biased technology on TFP.

Information and communication technologies over the business cycle

This paper quantifies the relative importance of different sources of technological progress as determinants of short-run fluctuations in the US economy. In particular, it focuses on the role of the technical innovations associated with information and communication technologies (ICT). The paper points to three main findings. First, neutral technical change is the main determinant of the US aggregate fluctuations, and its contribution remained constant throughout the postwar sample. Second, the importance of ICT increased significantly during the last decades of the considered sample, which nowadays is responsible for approximately 1/5 of GDP fluctuations. Third, the variance reduction of exogenous shocks typically associated with the last decades of the postwar sample, mainly comes from ICT and neutral shocks, whereas the volatility of innovations in traditional capital remained relatively stable. Overall, we conclude that attention should be focused on identifying those incentives behind the adoption of knowledge and technology, an issue related to the neutral progress, rather than the quality or technology embedded in capital goods such as ICT assets.

Technology and the great divergence: Global economic development since 1820

The paper measures productivity growth in seventeen countries in the nineteenth and twentieth centuries. GDP per worker and capital per worker in 1985 US dollars were estimated for 1820, 1850, 1880, 1913, and 1939 by using historical national accounts to back cast Penn World Table data for 1965 and 1990. Frontier and econometric production functions are used to measure neutral technical change and local technical change. The latter includes concurrent increases in capital per worker and output per worker beyond the highest values achieved. These increases were pioneered by the rich countries of the day. An increase in the capital-labor ratio was usually followed by a half century in which rich countries raised output per worker at that higher ratio. Then the rich countries moved on to a higher capital-ratio, and technical progress ceased at the lower ratio they abandoned. Most of the benefits of technical progress accrued to the rich countries that pioneered it. It is remarkable that countries in 1990 with low capital labor ratios achieved an output per worker that was no higher than countries with the same capital labor ratio in 1820. In the course of the last two hundred years, the rich countries created the production function of the world that defines the growth possibilities of poor countries today.

BIASED TECHNICAL CHANGE, INTERMEDIATE GOODS, AND TOTAL FACTOR PRODUCTIVITY

In this paper I show that the intensity at which intermediate goods are used in the production process affects aggregate total factor productivity (TFP). To do this, I construct an input–output model economy in which firms produce gross output by means of a production function in capital, labor, and intermediate goods. This production function is subject, together with the standard neutral technical change, to intermediates-biased technical change. Positive (negative) intermediates-biased technical change implies a decline (increase) in the elasticity of gross output with respect to intermediate goods. In equilibrium, this elasticity appears as an explicit part of TFP in the value added aggregate production function. In particular, when the elasticity of gross output with respect to intermediates increases, aggregate TFP declines. I use the model to quantify the impact of intermediates-biased technical change for measured TFP growth in Italy. The exercise shows that intermediates-biased technical change can account for the productivity slowdown observed in Italy from 1994 to 2004.

Technical change in Westphalian peasant agriculture and the rise of the Ruhr, circa 1830-1880

Most questions about the sources of agricultural growth during the ‘first agricultural revolution’ are still debated. For the Prussian province of Westphalia, we estimated a translog production function to determine the contribution of intensification and technical change from 1830 to 1880. Additionally, we present evidence on the impact that neutral and biased technical change had on growth. Furthermore, we examine whether spatial differences can be identified concerning the sources of agricultural growth and whether they followed a von Thuenen pattern around the demand centre of the rising industrial belt on the Ruhr River. In addition, we explain why, under the conditions of pre-industrial agriculture, regions with the highest output growth did not necessarily have to exhibit the most dynamic TFP-growth, even if they contributed, on average, the most to output growth.

Technology shocks and aggregate fluctuations in an estimated hybrid RBC model

This paper contributes to the on-going empirical debate regarding the role of the RBC model and in particular of neutral and investment-specific technology shocks in explaining aggregate fluctuations. To achieve this, we estimate the model's posterior density using Bayesian methods. Within this framework we first extend Ireland (2001b, 2004a) hybrid estimation approach to allow for a vector autoregressive moving average (VARMA) process to describe the movements and co-movements of the model's errors not explained by the basic RBC model. Our main findings for the model with neutral technical change are: (i) the VARMA specification of the errors significantly improves the hybrid model's fit to the historical data relative to the VAR and AR alternatives; and (ii) despite setting the RBC model a more difficult task under the VARMA specification, neutral technology shocks are still capable of explaining a significant share of the observed variation in output and its components over shorter- and longer-forecast horizons as well as hours at shorter horizons. When the hybrid model is extended to incorporate investment shocks, we find that: (iii) the VAR specification is preferred to the alternatives; and (iv) the model's ability to explain fluctuations improves considerably.

Sources of productivity growth on Finnish dairy farms—application of an input distance function

Abstract The objective is to examine sources of productivity change on Finnish dairy farms in the 1990s. The decomposition of productivity change into technical and technical efficiency change is widely recognized but it neglects the scale effect. Generalized decompositions incorporating all three components are calculated for a sample of Finnish dairy farms from 1989–2000. This period is of interest because of the drastic change in agricultural policy when Finland joined the European Union (EU) in 1995. The results indicate that productivity growth was on average low, approximately 0.15% per year. Neutral technical change was identified as the most important source of productivity growth (1.1%). Technical efficiency decreased by almost 0.5% annually. The contribution of the scale effect in productivity change increased towards the end of study period.

Hicks Neutral Technical Change Revisited: CES Production Function and Information of General Order

In this paper, I show that Hicks neutral technical change is identified as the information of order sigma; obtained if the distribution of factor prices is replaced by the distribution of factor efficiency parameters. Together with Solow's residual, the information method enables us to distinguish between the neutral and non neutral part of technical and organizational changes. An empirical evaluation of both methods is provided using Jorgenson's (2001) US data for the period 1948-1999. The main results of the paper are that i) both neutral and non neutral technical change have occurred in the US in the period 1948-1999 and ii) 3/4th of the productivity slowdown observed in the 70s and 80s is due to a deceleration in the contribution of non neutral technical changes.

Hicks Neutral Technical Change Revisited: CES Production Function and Information of General Order

In this paper, i show that hicks neutral technical change is identified as the information of order sigma obtained if the distribution of factor prices is replaced by the distribution of factor efficiency parameters. Together with solow's residual, the information method enables us to distinguish between the neutral and non neutral part of technical and organizational changes. An empirical evaluation of both methods is provided using jorgenson's (2001) us data for the period 1948-1999. The main results of the paper are that i) both neutral and non neutral technical change have occurred in the us in the period 1948-1999 and ii) 3/4th of the productivity slowdown observed in the 70s and 80s is due to a deceleration in the contribution of non neutral technical changes.