Technology revolution and dynamics of total factor productivity

This paper analyzes whether technology revolution improve country's productivity. It attempts to explain the fluctuation of productivity and the difference in levels of technology across countries. There are three main chapters. First chapter studies the Overlapped Generations model (OLG) of technology adoption. The second chapter focuses on the Cass-Koopmans Optimal Growth model of technology adoption. The third chapter explores the labor productivity dynamics and structural changes using econometric tools. The result from the Overlapped Generations model shows that if the learning cost in new technology is not too high, workers may find it worthwhile to invest in educational process. The results of calibration on subsidy policy indicate that when the education subsidy is introduced, total factor productivity will improve in every level of education cost. However, there is no welfare gain in every level of education cost. In the second chapter, the results from the Cass-Koopmans Optimal Growth model in are different from those of the Overlapped Generations model. The Cass-Koopmans Optimal Growth model assumes higher cost to become a skilled agent holding the ability distribution constant. It considers the policy experiment impact on income effects and substitution effects. The results indicate that an education subsidy does not improve productivity and welfare of economy. The level of productivity decline and welfare loss depends on the fraction of low-technology production. The empirical results on quarterly data of OECD countries show that changes in capital stock, changes in investment, changes in machinery investment, and changes in domestic credit have positive correlation on labor productivity. The time-varying parameter model is specified in case of Germany, Italy, Korea, New Zealand, Norway, Spain, Sweden, and the United States. The results of the study conclude that there exists a co-movement between investment coefficient and GDP growth in some countries. The results show some fluctuation on correlation between exogenous variables and changes in labor productivity due to the behavior adjustment of agents upon new information.