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Technological Change and Welfare in an Open Economy with Distortions
Author(s) -
Perrin Richard K.,
Fulginiti Lilyan E.
Publication year - 2001
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/0002-9092.00169
Subject(s) - technological change , economics , technical change , welfare , open economy , induced innovation , structural change , small open economy , microeconomics , macroeconomics , market economy , monetary policy , productivity , exchange rate
Traditional measures of technological change, such as the rate of technical change, are based on producer‐oriented prices. Here, we employ a general equilibrium analysis of an open economy to examine how the consumer welfare gain from a technological change, measured as Hicksian equivalent variation, is related to the rate of technical change, the biases of the technological change, and tax distortions in the economy. An analytical solution shows these relationships in a readily computable framework, and demonstrates that the rate of technical change will equal the rate of welfare change in only very unrealistic cases.