Ebook Technical Progress, Accumulation and Financial Constraints: Is the Productivity Paradox Really a Paradox?
This paper analyzes the macroeconomic effects of the introduction of a new and superior technique. We argue that technical progress represents a qualitative change, and as such calls for a restructuring of productive capacity that is necessary in order to reap the potential benefits of this change. This restructuring takes place in time, is charaterized by irreversibilities that pose a problem of intertemporal coordination, and thus can not be treated as an equilibrium phenomenon. This is why we propose a sequential model (derived by Hicks, 1973) whose distinguishing features is the explicit consideration of the time structure of production. This model is in our opinion well suited to highlight the dynamics of technical change, and the crucial factors behind it (accumulation, monetary policy, learning).
The standard representation of technology a production function is appropriate in equilibrium, when the synchronization of economic activity makes the temporal articulation of production irrelevant. Inputs map directly into output, and there is no possible discrepancy between potential and actual productivity.
There is instead a thorough change of perspective when it is acknowledged that productivity gains, far from being a property of the production function, can only emerge as a consequence of a transition phase which implies to carry out new production processes bringing about new products, and these to be absorbed by the market. This transition phase is characterized by market disequilibria, signaling a lack of (intertemporal) coordination that has to be managed by policy intervention. The final outcome of the process is not predetermined, and hence there is no automatic increase in productivity following a positive shock. If we stick to an equilibrium framework, instead, productivity gains are built into the production function, and the so called ’productivity paradox’ can only be explained by delayed adoption.
The next two sections will further discuss the differences between the standard explanations of the productivity slowdown, and our own approach. Section 4 will then introduce the sequential model we present, that builds over Amendola and Gaffard (1998). In section 5 we’ll show, by means of simulations, that the benefits of the new technology may only be appropriated if the coordination disrupted by the shock is recovered through accumulation of physical and human capital, suitably accommodated by monetary policy. Sections 6 and 7 will conclude with some theoretical cosiderations, and draw the policy implications of our results, proposing a novel interpretation of the recent macroeconomic performances of the US and the EU.
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