Embodiment in U.S. Manufacturing

Bart Hobijn

(currently being revised jointly with Ana Maria Oviedo)

Abstract

I derive an augmented version of the user cost equation of capital that includes the e¤ect of embodied technological change. This equation allows for the quantification of embodied technological change on the basis of observed investment behavior. I use this equation to estimate the magnitude of embodied technological change for the 20 2-digit manufacturing sectors of the U.S. economy for the period 1960- 1996. The results obtained using this user equation of capital suggest (i) unmeasured quality improvements in equipment and structures are about 5.6% and 8.5% annually respectively, (ii) since 1973, annual quality improvements of equipment have accelerated by about 4.7%.

Keywords: embodiment, GMM, investment behavior, manufacturing, panel data

JEL-codes: C33, O33, O47

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