The aim of this paper is to investigate the roots of the stagnation in the Italian total factor productivity (TFP). The analysis focuses on the specific pattern of technical progress in determining the dynamics of the TFP. This analysis cannot be done with Cobb-Douglas technology, but requires the employment of a constant elasticity of substitution (CES) production function that allows distinguishing between the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capital-augmenting technical change, with a σ less than 1. We obtain three main results. (1) There seems to have been a structural break around the mid-1990s in the direction and bias of technological change; (2) The first half of the sample features a laboraugmenting technical change and a capital bias; and (3) In the second part of the sample, both these characteristics seem to disappear, and the evolution of factor endowments assumes a key role. This fact may be seen as one of the potential causes of the stagnation in Italian productivity.

Elasticity of substitution and the stagnation of Italian productivity / Federici, Daniela; Saltari, Enrico. - In: ECONOMICS OF INNOVATION AND NEW TECHNOLOGY. - ISSN 1043-8599. - ELETTRONICO. - (2015), pp. 1-12. [10.1080/10438599.2015.1076195]

Elasticity of substitution and the stagnation of Italian productivity

Saltari, Enrico
2015

Abstract

The aim of this paper is to investigate the roots of the stagnation in the Italian total factor productivity (TFP). The analysis focuses on the specific pattern of technical progress in determining the dynamics of the TFP. This analysis cannot be done with Cobb-Douglas technology, but requires the employment of a constant elasticity of substitution (CES) production function that allows distinguishing between the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capital-augmenting technical change, with a σ less than 1. We obtain three main results. (1) There seems to have been a structural break around the mid-1990s in the direction and bias of technological change; (2) The first half of the sample features a laboraugmenting technical change and a capital bias; and (3) In the second part of the sample, both these characteristics seem to disappear, and the evolution of factor endowments assumes a key role. This fact may be seen as one of the potential causes of the stagnation in Italian productivity.
CES production function; elasticity of substitution; factor-augmenting technical progress and ICT technical change; Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous); Management of Technology and Innovation
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Elasticity of substitution and the stagnation of Italian productivity / Federici, Daniela; Saltari, Enrico. - In: ECONOMICS OF INNOVATION AND NEW TECHNOLOGY. - ISSN 1043-8599. - ELETTRONICO. - (2015), pp. 1-12. [10.1080/10438599.2015.1076195]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/827487
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