INDUCED INNOVATION TESTS ON WESTERN AMERICAN AGRICULTURE: A COINTEGRATION ANALYSIS

The Induced Innovation Hypothesis (IIH) is tested for Western US agriculture by means of a cointegration test. An ECM model is used to separate the short-run and long-run effects of relative price changes. A difference in the elasticities of factor substitution along the isoquant curve and the innovation possibility curve implies IIH. The estimated results showed that the induced innovation hypothesis was supported for the three regions of Washington, PNW, and the West, but not for the nation. However, while changes in relative input prices induced innovation, changes in output level or R&E investments did not. The empirical tests failed to find any significant impact of changes in the latter variables on agricultural technology in any of the geographic units