We study how demand shocks affect productivity by provoking technical change. Our model shows that increasing demand leads to technical change and productivity improvements through a direct market size effect and an indirect competition effect. We test the predictions using a natural experiment in the US corn industry where changes to national energy policy created exogenous increases in demand. Estimates show that the increase in demand caused technical change as corn producers adopted new technologies which in turn raised productivity by 5.7% per annum in the five years after the policy change. Although both channels are found to motivate technical change, the economic magnitude of the direct effect substantially outweighs the indirect effect. Download the PDF of this paper
View all CFCM discussion papers | View all School of Economics featured discussion papers
Sir Clive Granger BuildingUniversity of NottinghamUniversity Park
Nottingham, NG7 2RD
+44 (0)115 951 5620
Connect with the University of Nottingham through social media and our blogs.
Campus maps | More contact information | Jobs
Browser does not support script.