Intermediate inputs and technical change in the U.S. lumber and wood products industry.

Abstract

This paper examines the estimation of technical change in the U.S. lumber and wood products industry. Previous studies along these lines have assumed an industry production function in which output is measured as value-added, and therefore intermediate inputs are not treated symetrically with capital and labor inputs. The exclusion of intermediate inputs for the production process in industry level productivity studies places unnecessary restrictions on the production process, producer behavior and the nature of technical change. It is shown that the estimated rate of technical change based on a value-added model of production is necessarily greater than the rate derived from a model that treats all inputs symetrically. The practical significance of this upward bias is examined by calculating indexes of technical change for the lumber and wood products industry based on value-added and gross output production functions. It is concluded that the gross output model is more appropriate for analyzing productivity and technical change in the lumber and wood products industry.