Time Varying Elasticity of Production through Patent Growth (2016)

Undergraduate: Andrew Castro

Faculty Advisor: Neville Francis
Department: Economics

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In a Cobb-Douglass production function, elasticity of capital and labor is assumed to be constant. By assuming patent growth is analogous to technology growth, we are able to find elasticities that vary with time. We apply this method to several countries, using data from the World Bank and each countries respective statistical bureau. It is expected that the elasticity fluctuates around a single value, with deviations caused by shocks. After finding major changes in this deviation, we compare to historical occurrences to find any possible explanation. We also track significant patents to track their impact on production. When compared to data on production, we expect to find decreasing returns to scale over time for most patent, but increases in production for historically significant patents. Comparing with the basic Cobb-Douglass model, we expect to find that time variant elasticities result in a more accurate modeling of a given country¿¿¿s production.