Working Paper: CEPR ID: DP1080
Authors: Elhanan Helpman; Manuel Trajtenberg
Abstract: We develop a model of growth driven by successive improvements in `General Purpose Technologies' (GPTs), such as the steam engine, electricity, or micro-electronics. Each new generation of GPTs prompts investments in complementary inputs and impacts the economy after enough such compatible inputs become available. The long-run dynamics take the form of recurrent cycles: during the first phase of each cycle output and productivity grow slowly or even decline, and it is only in the second phase that growth starts in earnest. The historical record of productivity growth associated with electrification, and perhaps also of computerization lately, may offer supportive evidence for this pattern. In lieu of analytical comparative dynamics, we conduct simulations of the model over a wide range of parameters, and analyse the results statistically. We extend the model to allow for skilled and unskilled labour, and explore the implications for the behaviour over time of their relative wages. We also explore diffusion in the context of a multi-sector economy.
Keywords: growth; productivity; general purpose technology
JEL Codes: E32; O3; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of a new GPT (Y20) | Decline in output and productivity (O49) |
| Introduction of a new GPT (Y20) | Stagnation of real wages (F66) |
| Introduction of a new GPT (Y20) | Decrease in the share of profits in GDP (D33) |
| Development of complementary inputs (O49) | Transition to growth phase (O41) |
| Transition to growth phase (O41) | Rising output (E23) |
| Transition to growth phase (O41) | Rising real wages (J39) |
| Transition to growth phase (O41) | Rising profits (D33) |
| Rate of advancement of the GPT (O47) | Growth rate during growth phase (O41) |
| Initial decline in GDP (E20) | Reallocative inefficiencies and monopolistic competition (D61) |
| Skilled workers benefit (J24) | Introduction of a new GPT (Y20) |
| Unskilled workers experience stagnation (F66) | Introduction of a new GPT (Y20) |
| Unskilled workers gain (F66) | Transition to growth phase (O41) |