Factor-Augmenting Technical Change: an Empirical Assessment

This paper estimates factor-specific technical change and input substitution using a structural approach. It improves upon the existing literature by introducing technology drivers for factor productivities and by assessing the impact of endogenous technical change on the estimates of substitution elasticities. The empirical results suggest that factor-productivities are indeed endogenous. In addition, technology drivers are factor-specific. Whereas R&D investments and machinery imports are important determinants of energy and capital productivity, education is found to be statistically related to labour productivity. The rate of energy-augmenting technical change is larger than that of either labour or capital. By contrast, the productivity of these two factors grows at similar rates. Estimates of the elasticities of substitution are within the ranges identified by previous literature. In addition, our results suggest that endogenous technical change lowers the estimated values of the substitution elasticity.