The Quantitative Role of Capital Goods Imports in US Growth

A significant body of literature has found that technological improvements embodied in new capital goods account for a large share of US output growth. This phenomenon, know as investment-specific technological change, has stimulated the growth rate of output by raising the efficiency of equipment and software (E&S) in the production of the final output. In an influential contribution, Jeremy Greenwood, Zvi Hercowitz, and Per Krusell (1997) found that investment-specific technological change accounted for nearly 60% of growth in US output per hour during the postwar period. The goal of this paper is to measure the contribution of capital goods imports to growth in US output per our using a simple growth accounting exercise. We find that capital goods imports have contributed 20 to 30% to growth in US output per hour between 1967 and 2008. We also find that, overall, the average contribution of the stock of E&S to growth in US output per hour has been about 70%. This implies that capital goods imports have explained 30 to 40% of the average contribution of the stock of E%&S to growth in the US output per hour. More importantly, we find that capital goods imports have represented an increasing source of growth for the US economy. Indeed, we show that, over the sample period, the average contribution of capital goods imports to growth in the US output per hour has increased noticeably.