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Dr. Pablo Azar
Financial Research Economist
Federal Reserve Bank of New York

Over the past sixty years, semiconductor sizes have decreased by 50 percent every eighteen months, a trend known as Moore’s Law. Moore’s Law has increased productivity in virtually every industry, both by increasing the computational and storage power of electronic devices, and by allowing the incorporation of electronics into existing products such as vehicles and industrial machinery. In this paper, I examine the physical channel through which Moore’s Law affects GDP growth. A new model incorporates physical constraints on firms’ production functions and allows for new types of spillovers from the physical characteristics of products. I use the model, and a new data set of product weights, to estimate the effect of the electronic miniaturization channel on productivity growth. The results show that between 11.74 and 18.63 percent of productivity growth during 1960 to 2019 can be attributed to physical changes in the size of electronic components. This effect is highest during the 1990s and early 2000s.