Information technologies, embodiment and growth

This paper studies the conditions under which an IT revolution may occur and have permanent effects on long-term growth. To this end, we construct a multi-sectoral growth model with endogenous embodied technical progress. The R&D sector expands the range of softwares. The capital sector produces efficient capital combining hardware with available softwares. Technological progress is therefore embodied: New softwares can only be run on the most recent generations of hardware. The new softwares are copyrighted during a fixed period of time. First, we analytically characterize the balanced growth paths of the model. Then we focus on the dynamic response of the economy to technological shocks. Substitution effects favorable to the IT sectors are shown to arise when positive supply shocks affect the production of efficient capital and/or the creation of new softwares. Positive shocks specific to the capital sector are unable to produce effects on long-term growth, in contrast to the shocks specific to the R&D sector.