98-F-8. Nishimura, G. Kiyohiko and Masato Shirai, "Measurement of Sectoral Technological Progress in Japan", March 1998.

This paper examines the direction and the magnitude of bias in the technological progress measurement due to imperfect competition and short-run fixed costs. We show that, if capital growth exceeds non-capital input growth, the traditional measure underestimates the true technological growth if the pure profit is on the average positive. We then measure the actual magnitude of this bias by re-estimating sectoral technological progress in the Japanese industries. We find that the traditional measurement underestimates the technological progress by about one third between 1962 and 1974.