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Demand‐Driven Technical Change and Productivity Growth: Theory and Evidence from the Energy Policy Act
Author(s) -
Impullitti Giammario,
Kneller Richard,
McGowan Danny
Publication year - 2020
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12231
Subject(s) - productivity , exploit , natural experiment , technical change , economics , shock (circulatory) , quality (philosophy) , difference in differences , demand shock , production (economics) , industrial organization , technological change , consumer demand , total factor productivity , natural resource economics , microeconomics , macroeconomics , econometrics , medicine , philosophy , statistics , computer security , mathematics , epistemology , computer science
We present novel evidence on the effect of market size on technology adoption and productivity. Our tests exploit a natural experiment in the U.S. corn industry where changes to national energy policy created exogenous increases in demand. Difference‐in‐difference estimates show that the demand shock caused technical change as corn producers adopted higher quality seeds which in turn raised productivity by 7%. We develop a simple model that formalizes the mechanisms underlying our results.