Induced Innovation in United States Agriculture, 1880-1990 : Time Series Tests and an Error Correction Model

An error correction model (ECM) of induced innovation, based on the two-stage CES production function allows direct tests of the inducement hypothesis, which are applied to U.S. data for 1880-1990. The time series properties of the variables include a structural break in 1920, cointegration is established and an ECM constructed, which allows factor substitution to be separated from technological change. Causality tests show that the factor-price ratios and R&D are Granger-prior to the factor-saving biases of technological change. The inducement hypothesis is corroborated, and identified as one factor in the complex development of U.S. agriculture