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Process Versus Product Innovation: Do Consumption Data Contain Any Information?
Author(s) -
Thompson Peter,
Waldo Doug
Publication year - 2000
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2000.tb00326.x
Subject(s) - total factor productivity , economics , econometrics , product (mathematics) , slowdown , productivity , consumption (sociology) , quality (philosophy) , endogenous growth theory , isomorphism (crystallography) , process (computing) , production (economics) , microeconomics , mathematics , macroeconomics , computer science , social science , geometry , operating system , sociology , philosophy , crystal structure , chemistry , epistemology , crystallography , economic growth , human capital
In a model of endogenous growth in which product and process innovations are the joint outputs of an unspecified research program, we show that if quality growth is not captured by official price indices the usual isomorphism of product and process innovations breaks down. We derive and estimate a Euler equation for a representative consumer under the assumption of measurement error. Unobserved quality improvements account for at least half of growth, and real productivity growth in postwar United States was two to five times greater than measured total factor productivity (TFP) growth. We also find that at least 15% of the measured slowdown in TFP growth can be attributed to unobserved increases in the relative importance of product innovations.