The direction of technical change: a study based on the inter-provincial panel data of China

TLDR: In this paper, the authors apply the framework of ACEmoglu, D. (2002, ‘Directed technical change’, The Review of Economic Studies, 69, 781-809) to develop explanations for the following questions: What kind of production function is appropriate to special economies? If and to what degree technical change is biased towards particular factors? Based on interprovincial panel data of China, they show that: First, biased production functions are more appropriate than neutral ones.

Abstract: Technical change is usually biased and benefits some factors more than others; however, the literature on the effect of technical progress is limited to the direction of technical change. For developing countries, whether technical change is biased towards particular factors is of central importance. We apply the framework of Acemoglu, D. (2002, ‘Directed technical change’, The Review of Economic Studies, 69, 781–809) to develop explanations for the following questions: What kind of production function is appropriate to special economies? If and to what degree technical change is biased towards particular factors? Based on inter-provincial panel data of China, this paper shows that: First, biased production functions are more appropriate than neutral ones. Second, the elasticity of substitution between labour and capital is less than a unity within the interval of 0.50 to 0.70, which indicates the asymmetric effect of technical progress on the productivity of capital and labour (a bias clearly in favour o...