Skip to main content Accessibility help
  • Print publication year: 2009
  • Online publication date: June 2014

9 - Structural breaks, non-stationarity and spurious regressions


Economic issues include:

The New Economy

Investment in computing

Venture capital funding

Econometric issues include:

Structural breaks

Unit roots, non-stationarity and spurious regressions

Data issues include:

Measuring the New Economy

The issue

In this chapter we will look at the relationship between computing investment and venture capital financing in the New Economy. Computing investment has been essential to the growth of the New Economy: Yang and Brynjolfsson (2001) argue that computerisation is the most pervasive technological change this era. IT (information technology) investments promoted improved macroeconomic performance, culminating from large increases in productivity and growth in the 1990s onwards, particularly in the US. Increasing GDP growth was accompanied by reduced volatility in GDP. This is because IT innovations played a key role in promoting greater flexibility; for example, innovations such as price comparison sites (e.g. and increased micro-economic flexibility via increased price transparency.

The New Economy grew rapidly from the 1990s onwards and its growth was enabled by venture capital injections. Venture capital is of particular importance because young entrepreneurs are responsible for a substantial proportion of the innovative New Economy investments. These entrepreneurs do not have profits retained from existing production. So venture capital funds are important in providing them finance for their new investments.

In this chapter we will explore the relationship between New Economy investment and venture capital funding.

Further reading
Text books
Schumpeter, J. A. (1939) Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, New York: McGraw-Hill.
Thomas, R. L. (1997) Modern Econometrics – An Introduction, Harlow: Addison-Wesley, Chapters 13 and 14.
Academic articles and working papers
Baddeley, M. (2008) ‘Structural shifts in UK unemployment: the twin impacts of financial deregulation and computerisation’, Bulletin of Economic Research, vol. 60, no. 2 (April), 123–57.
Cecchetti, S. G. (2002) The New Economy and Challenges for Macroeconomic Policy, National Bureau of Economic Research Working Paper No. 8935, National Bureau of Economic Research.
Gordon, R. J. (2000) ‘Does the “New Economy” measure up to the great inventions of the past?’, Journal of Economic Perspectives, vol. 14, 49–74.
Whelan, K. (2002) ‘Computers, obsolescence and productivity’, Review of Economics and Statistics, vol. 84, no. 3, 445–61.
Yang, S. and Brynjolfsson, E. (2001) ‘Intangible Assets and Growth Accounting: Evidence from Computer Investments’, Massachusetts Institute of Technology, downloaded from
Policy briefs and newspaper articles
Dunne, T. (1991) Technology Usage in US Manufacturing Industries, Washington D.C.: US Census Economic Studies.
Landefeld, J. S. and Fraumeni, B. M. (2000) ‘Measuring the New Economy’, US Bureau of Economic Analysis Advisory Committee Meeting.
Solow, R. M. (1987) ‘We'd better watch out’, New York Times Book Review, 12 July 1987, 36.
,UNCTAD (2008) Science and Technology for Development: the New Paradigm of ICT, Geneva and New York: United Nations.