Working Paper Series no. 503: Technological Standardization, Endogenous Productivity and Transitory Dynamics

Abstract

We uncover technological standardization as a microeconomic mechanism which is vital for the implementation of new technologies, in particular general purpose technologies. The interdependencies of these technologies require common rules (“standardization”) to ensure compatibility.  Using data on standardization, we are therefore able to identify technology shocks and analyze their impact on macroeconomic variables. First, our results show that technology shocks diffuse slowly and generate a positive S-shaped reaction of output and investment. Before picking up permanently, total factor productivity temporarily decreases, suggesting that the newly adopted technology is incompatible with installed physical, human and organizational capital. Second, standardization can reveal news about future movements of macroeconomic aggregates as evidenced by the positive and immediate reaction of stock market variables to the identified technology shock.

Justus Baron and Julia Schmidt
August 2014

Classification JEL : E32, O31, O33

Keywords : technology adoption, business cycle dynamics, standards, aggregate productivity, Bayesian vector autoregressions