General Purpose Technologies - Boyan Jovanovic- Peter L. Rousseau

Chapter 18

GENERAL PURPOSE TECHNOLOGIES
BOYAN JOVANOVIC
New York University
and
NBER
PETER L. ROUSSEAU
Vanderbilt University
and
NBER

Contents
Abstract
Keywords
1. Introduction
1.1. What is a GPT?
1.2. Summary of findings
1.2.1. Similarities between the Electrification and IT eras
1.2.2. Differences between the Electrification and IT eras

2. Measuring the threecharacteristics of a GPT
2.1. Pervasiveness of the GPT
2.1.1. Pervasiveness in the aggregate
2.1.2. Pervasiveness among sectors
2.1.3. Adoption by households
2.1.4. On dating the endpoints of a GPT era
2.2. Improvement of the GPT
2.3. Ability of the GPT to spawn innovation
2.3.1. Patenting
2.3.2. Investment by new firms vs. investment by incumbents

3. Other symptoms of a GPT
3.1. Productivityslowdown
3.2. The skill premium
3.3. Entry, exit, and mergers should rise
3.4. Stock prices should fall

Handbook of Economic Growth, Volume 1B. Edited by Philippe Aghion and Steven N. Durlauf
© 2005 Elsevier B.V. All rights reserved
DOI: 10.1016/S1574-0684(05)01018-X

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B. Jovanovic and P.L. Rousseau

3.5. Young firms should do better
3.5.1. The age of the leadership
3.5.2. The age of firms at their IPO
3.5.3. The stock market performance of the young vs. old after entry
3.6. Consumption, interest rates, and the trade deficit
3.6.1. The trade deficit
3.6.2. The consumption–income ratio
3.6.3. Interest rates

4. Conclusion
AcknowledgementsReferences

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Abstract
A general purpose technology or GPT is a term coined to describe a new method of
producing and inventing that is important enough to have a protracted aggregate impact.
Electricity and information technology (IT) probably are the two most important GPTs
so far. We analyze how the U.S. economy reacted tothem. We date the Electrification era
from 1894 until 1930, and the IT era from 1971 until the present. While we document
some differences between the two technologies, we follow David [In: Technology and
Productivity: The Challenge for Economic Policy (1991) 315–347] and emphasize their
similarities. Our main findings are:
1. Productivity growth in the two GPT eras tended to be lower than itwas in other
periods, with productivity slowdowns taking place at the start of the two eras and
the IT era slowdown stronger than that seen during Electrification.
2. Both GPTs were widely adopted, but electricity’s adoption was faster and more
uniform over sectors.
3. Both improved as they were adopted, but measured by its relative price decline,
IT has shown a much faster improvement thanElectricity did.
4. Both have spawned innovation, but here, too, IT dominates Electricity in terms of
the number of patents and trademarks issued.
5. Both were accompanied by a rise in “creative destruction” and turbulence as measured by the entry and exit of firms, by mergers and takeovers, and by changing
valuations on the stock exchange.
In sum, Electrification spread faster than IT has beenspreading, and it did so more
evenly and broadly over sectors. Also, IT comprises a smaller fraction of the physical
capital stock than electrified machinery did at its corresponding stage. On the other
hand, IT seems to be technologically more dynamic; the ongoing spread of IT and its
continuing precipitous price decline are reasons for optimism about productivity growth
in the 21st century.Ch. 18:

General Purpose Technologies

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Keywords
electricity, information technology, IT revolution, productivity slowdowns, technology
improvement, creative destruction
JEL classification: O3, N2

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B. Jovanovic and P.L. Rousseau

1. Introduction
The term “general-purpose technology”, or GPT, has seen extensive use in recent treatments of the role of technology in...