Technological change and accumulated capital: A dynamic decomposition of japan’s growth

Introduction In this paper we evaluate technological progress using static and dynamic production linkages. Technologies of an activity are mutually interdependent through the market transactions of all the “produced” inputs. This implies that the production of one commodity is linked to that of all other commodities, both directly and indirectly, through intermediate transactions. Because of this, the change in a commodity's technological efficiency should be measured as the change in the economy's productivity induced by technology change in all linked activities. But production linkages between the commodity and the rest of the economy should not be evaluated simply through the static interdependent relationships among sectors. The dynamic interrelationship among sectors through the process of accumulating capital as produced factors of production should also be included. The productivity of a sector in a specific period depends on its use of primary factors, such as labor and capital, as well as of intermediate inputs. The capital a sector uses is extracted from the capital accumulated through past investments. Prior investment is characterized by properties of technology during the periods when the accumulated capital was produced and invested. This means that past capital investment affects present production efficiency. In the traditional growth accounting framework, however, capital investments are measured as direct contributions to gross product with no direct link to technological progress. Hence, it would be interesting to isolate technological progress through the accumulation of these capital contributions, so that we could measure its effect on productivity.