Evidence of Induced Innovation in US Sectoral Capital’s Shares

Documentos de Trabajo, No. 80, 2010

28 Pages Posted: 8 Mar 2010

See all articles by Andrew Young

Andrew Young

Emory University - Department of Economics

Andres F. Garcia-Suaza

Universidad del Rosario - Faculty of Economics

Hernando Zuleta

Universidad del Rosario

Date Written: March 2010

Abstract

We use annual data on capital’s share and relative factor prices from 35 US industries from 1960 to 2005 to test the induced innovation hypothesis. We derive, from a production function framework, testable implications for the effect of contemporaneous and lagged factor price ratios on capital’s share of production. The predicted effect is positive or negative depending on the elasticity of substitution between labor and capital. From panel regressions, the estimated effect of the contemporaneous factor price ratio implies an elasticity of substitution that is less than unity, consistent with the consensus from the literature. Based on this, our negative estimated effects for lagged price ratios are both statistically significant and consistent with the induced innovation hypothesis.

Keywords: induced innovation, biased technical change, capital’s share, labor’s share, elasticity of substitution

JEL Classification: O31, O47, E25, E23

Suggested Citation

Young, Andrew T. and Garcia, Andres F. and Zuleta, Hernando, Evidence of Induced Innovation in US Sectoral Capital’s Shares (March 2010). Documentos de Trabajo, No. 80, 2010, Available at SSRN: https://ssrn.com/abstract=1567100 or http://dx.doi.org/10.2139/ssrn.1567100

Andrew T. Young (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
404-727-1022 (Phone)

Andres F. Garcia

Universidad del Rosario - Faculty of Economics ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia

Hernando Zuleta

Universidad del Rosario ( email )

Calle 12 No. 6-25
Bogota, DC
Colombia