Technical change arises from three sources: innovation within firms; changes in the relative size of firms with different technologies; and the entry and exit of firms, which again carry different technologies. These sources of technical change have different causes and are controlled by different factors. The rate of technical change therefore depends on the relative mix of these different sources and on the factors that control them. In this paper a method is described whereby the sources may be identified and measured, and an empirical illustration of that method is provided. This example is unique, nevertheless questions are raised about the empirical validity of some interpretations of the productivity slowdown in the 1970s and 1980s.
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