Technological Standardization, Endogenous Productivity and Transitory Dynamics

July 2016

Technological standardization is an essential prerequisite for the implementation of new technologies: The interdependencies of these technologies require common rules ("standardization") to ensure compatibility. Though standardization is prevalent in practically every sector of industrialized economies, its macroeconomic implications have not been analyzed so far. Using data on standardization, we are able to measure the industry-wide adoption of new technologies and analyze their impact on macroeconomic variables. First, our results show that technology shocks di
use slowly and generate a positive S-shaped reaction of output and investment. Before picking up permanently, total factor productivity temporarily decreases, implying that the newly adopted technology is incompatible with installed capital. Second, standardization reveals information about future movements of macroeconomic aggregates as evidenced by the positive and immediate reaction of stock market variables to the identified technology shock. Standardization triggers a lengthy process of technology implementation whose aggregate effects only materialize after years; however, forward-looking variables pick up these developments on impact.

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