Can Solow's Measure of Technical Change be Applied to Cross-Sectional Data?

The seminal work of Robert Solow (1957) provides a model to measure technical change for an aggregated economy. The model expresses technical change in terms of improvements in labor productivity. The model was used by Solow and others to measure the extent of technical change in various economies a...

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Bibliographic Details
Published in:Journal of economic studies (Bradford) 1985-01, Vol.12 (5), p.58
Main Authors: Schive, Chi, Majumdar, Badiul A
Format: Article
Language:English
Subjects:
Econometrics
Mathematical models
Measurement
Technological change
Online Access:Get full text
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Summary:The seminal work of Robert Solow (1957) provides a model to measure technical change for an aggregated economy. The model expresses technical change in terms of improvements in labor productivity. The model was used by Solow and others to measure the extent of technical change in various economies and was applied in each case to time-series data. However, econometric estimates based on time-series data have a well-known multicollinearity problem. An attempt is made to show that the model can also be applied to measure technical change from cross-sectional data. While such an application will minimize the multicollinearity problems, it does have a serious limitation; it derives a common value of capital coefficient for different industries. However, this problem can be corrected by using dummy variables to differentiate a priori among industries with different capital coefficients and grouping them accordingly.
ISSN:0144-3585
1758-7387