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Ideas, idea processing, and TFP growth in the US: 1899 to 2019

James, Kevin R., Kotak, Akshay and Tsomocos, Dimitrios P. (2022) Ideas, idea processing, and TFP growth in the US: 1899 to 2019. Systemic Risk Centre Discussion Papers (121). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Innovativity – an economy's ability to produce the innovations that drive total factor productivity (TFP) growth – requires both ideas and the ability to process those ideas into new products and/or techniques. We model innovativity as a function of endogenous idea processing capability subject to an exogenous idea supply constraint and derive an empirical measure of innovativity that is independent of the TFP data itself. Using exogenous shocks and theoretical restrictions, we establish that: i) innovativity predicts the evolution of average TFP growth; ii) idea processing capability is the binding constraint on innovativity; and iii) average TFP growth declined after 1970 due to a constraints on idea processing capability, not idea supply.

Item Type: Monograph (Discussion Paper)
Additional Information: © 2022 The Authors
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G10 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
Date Deposited: 06 Sep 2022 12:42
Last Modified: 03 Oct 2022 14:45

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