The Effect of Patent Activity on Technical Change

An aggregate production function of the generalized Fechner-Thurstone (GFT) form is used to analyze the impact of patent activity, on technical change in China for the period 1985- 2005. Patents should alter isoquant maps, and measuring their elasticities is both intuitively and empirically appealing. We define a technology-changer as a variable that has an impact on the elasticity of the marginal rate of technical substitution (MRTS) between inputs of the GFT production function over time. It is found that total patent applications have significant impacts on the rates at which inputs are substituted for each other over time in production.