Induced Innovation in Italy: An Error Correction Model for the Period 1968-2002

In this work we utilise CES approach where factor ratios (mechanical power/labour and fertilizer/land) are regressed on price ratios and efficiency parameters (public and private R&D) to obtain a direct test of the induced innovation in Italian case for the period 1968-2002. Provided that inducement hypothesis implies a long run relationship an error correction model (ECM) is estimated to separate long-run effect, that is technological innovation, from short-run effects, that is factors substitution. The results corroborate the induced innovation hypothesis and underline the importance of private R&D in Italian agriculture.