Dynamic Analysis of Structural Change and Productivity Measurement

Finn R. Førsund and Lennart Hjalmarsson

Memo 27/2008

Last ned memo

A dynamic analysis of structural change is reviewed based on a vintage model of substitutability between inputs including capital before investment, but no substitution possibilities after investment, and ex post production possibilities characterised by fixed input coefficients. Key elements in understanding structural change are the entering of capacity embodying new technology and exiting of capacity no longer able to yield positive quasi-rent. Three production function concepts are identified: the ex ante micro unit production function as relevant when investing in new capacity, the ex post micro production function, and the short-run industry production function giving the production possibilities at the industry level. Productivity measurement, taking these types of production functions into consideration, leads to different interpretations of productivity change than traditional approaches not being clear about which production function concept is used.

Published June 20, 2014 10:25 AM - Last modified Jan. 24, 2019 11:43 AM