In this project we developed a theory for the amplification of technological improvement by the production network structure of the economy. The idea is that improvements are passed down the chain formed by industries and accumulate multiplicatively. Using a simple model for technological improvement, we show how to compute the overall improvement factor for the general case where the production network has a complicated structure containing cycles. This improvement factor is related to the output multiplier. This leads to testable predictions of about GDP growth. When added to other standard explanatory variables, we find the output multiplier remains a robust and statistically significant contributor. We studied the evolution of the length of the production network along the development path and we identified that it provides a comprehensive framework to study the acceleration and deceleration of economic growth, and is useful in forecasting growth.
People: J. Doyne Farmer