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This paper proposes a latent variable approach to examine the induced innovation hypothesis originating from Hicks (The theory of wages, Macmillan, London, 1932). It allows a flexible decomposition of total factor productivity into Type I (exogenous) and Type II (induced) technical changes using a latent variable d as an argument in a variable cost function. By making extensive use of duality theory, we are able to estimate the Hicksian input demand functions, which are explicit in d but may lack a closed-form representation in terms of observable variables such as input prices and output level. The "unobservability" of d is solved by using a numerical inversion estimation method. We apply this methodology with an appropriate estimator to investigate the impact of induced innovation on China's total factor productivity growth. Our findings indicate that the induced innovation hypothesis is strongly supported by the data and that induced innovation has a positive and profound effect on China's productivity growth. [ABSTRACT FROM AUTHOR]

We propose a new methodology to estimate empirically the input price-induced technical change and total factor productivity (TFP) growth in China. Our primary goal is to test Hicks' induced innovation hypothesis by examining whether technical change in China has been induced by sharp increase in input prices that have accompanied its rapid economic growth. Utilizing the idea of a firm's two-stage optimization problem, we develop a new parametric form of the variable profit function wherein the derived input demand and output supply functions can be easily constrained to be regular, and the functional structure is parsimonious in the number of parameters. Applying this methodology to Chinese time series data for 1986–2017, we find that not only is wage-induced innovation significant and quantitatively important, but also that it substantially buffered a decline in TFP growth before 2006 that would otherwise be substantial. Overall, we conclude that China's economic growth is predominantly driven by wage-induced innovation along with massive injection of heavily subsidized physical inputs in public works and huge investment in industrial sectors. [ABSTRACT FROM AUTHOR]

We investigate the effect of rising labour costs on induced technological change in China's secondary industry. Building on insights developed in a rich literature, we propose a model linking changes in labour productivity to changes in labour costs and the predetermined availability of physical capital. Importantly, we derive testable hypotheses to distinguish induced innovation from standard substitution of capital for labour under fixed technology. Our empirical results support the hypothesis that rising wages have induced labour-saving innovation in China, at least in the decade of the 1990s, but less so or not at all after the middle of the next decade. [ABSTRACT FROM AUTHOR]

Global wood consumption trends are reviewed in the context of framing a coherent forest policy in the era of climate change. Over the period 1980 to 2007, global wood consumption has been essentially stagnant, increasing by only 0.4% per year. In contrast over the same period, global consumption of wood products increased steadily, paper by an average 3.2% per annum and solid wood products (sawn timber and wood panels) by 0.8% per annum. Wood saving explains these significantly different growth trajectories in unprocessed wood and processed wood products. Wood saving strategies include recycling paper (in particular), investing in higher yielding pulp technologies, substituting reconstituted wood panels for sawn timber and plywood and growing high pulp-yielding trees in a plantation regime. China's rapidly growing wood products industry has lifted wood saving to a new high. Consistent with the theory of induced innovation, China has so far avoided triggering a global wood shortage and associated wood price increases through a progression of strategies: successful pre-emptive price negotiations, increased use of recycled paper, adoption of high-yielding pulp technologies, substitution of reconstituted wood panels for sawn timber and tree planting substituting for natural forest supply. If China's current wood saving strategies were emulated worldwide, through increased use of recycled paper in particular, and to a lesser extent, substitution of reconstituted wood panels for sawn timber and plywood, the already low growth in global wood consumption would flatten further and perhaps start to decline. These economic realities in the wood products industry align positively with the interlinked imperatives of biodiversity conservation and carbon storage in natural forests, if wood-saving is converted to forest-saving. [ABSTRACT FROM PUBLISHER]