Embodied technological change and technological revolution: Which sectors matter?

• The model presented reproduces the essential aspects of the recent ICT-economy.
• Endogenous growth theory and multi-sectoral framework.
• Productivity increase in the different sectors has an everlasting effect on growth.
• Study of the reaction of the economy to shocks.
• Extension of the model with learning and spillover effects reproduces real data.

This paper develops a model that reproduces the essential characteristics of the recent ICT Revolution and its effects on economic growth using the framework of endogenous growth theory. In particular, it considers a multi-sectoral growth model in discrete time with infinite horizon, endogenous growth, embodied technological progress, horizontal differentiation and “lab-equipment” specification of R&D. In this model we show analytically that an increase in the productivity of the different sectors (final good sector, equipment sector, intermediate good sector, R&D sector) has an everlasting effect on growth. The conclusion is that when an ICT-driven growth episode is due to the rise of the productivity of one of these sectors, this episode is likely to have permanent effects in the economy. The numerical simulation of the model, then, allows to get some further insights. Finally, an extension of the model that takes into account the presence of learning and spillover effects is able to reproduce empirically the behavior of US productivity in the recent years.