Aggregate returns to scale and embodied technical change: theory and measurement using stock market data$

We develop a new general equilibrium growthaccounting framework that features increasing returns to scale, imperfect competition and incorporates technological revolutions into the description of technical progress. We propose a way to tell apart revolutionary changes in technology and incremental innovations using stock market data. We use our framework to jointly estimate the overall embodied TFP change during 1953–1995 and the aggregate output elasticity. We find that the IT revolution raised the aggregate TFP level by about 20%. We suggest a 1.09–1.11 range for the aggregate returns to scale. r 2003 Elsevier B.V. All rights reserved.