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Productivity Slowdown and Resurgence. The Role of Capital Obsolescence

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  • Patrick Musso

Abstract

In a recent work, Karl Whelan [2003] argues that the hypothesis of balanced growth is firmly rejected by postwar u.s. data. There is some clear evidence that the ratio of real investment to real consumption has exhibited an upward trend since the late 1950s. In this case, the traditional one-sector model of economic growth provides a poor description of the long-run behavior of the u.s. economy. In this paper, I develop a simple two-sector model of economic growth in which the obsolescence of capital goods is endogenous. Numerical simulations of unbalanced growth paths suggest that the rapid decline in the relative price of equipment goods observed since the mid-1960s in the u.s. has shortened the average service-life of equipment, which, in turn, induced a long-lasting underestimation of the growth rate of Total Factor Productivity.

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Bibliographic Info

Article provided by Presses de Sciences-Po in its journal Revue économique.

Volume (Year): 55 (2004)
Issue (Month): 6 ()
Pages: 1215-1239

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Handle: RePEc:cai:recosp:reco_556_1215

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  1. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
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Cited by:
  1. Mukoyama, Toshihiko, 2008. "Endogenous depreciation, mismeasurement of aggregate capital, and the productivity slowdown," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 513-522, March.
  2. Eloi Laurent & Michel Juillard & Patrick Musso & Michel Aglietta & Jean Chateau & Hélène Baudchon & Gilles Le Garrec & Jean-Paul Fitoussi & Jérôme Creel & Vincent Touze & Jean-Luc Gaffard & Jacque, 2005. "Potential Growth in the EU : Prospects from Technical Progress and Eastern Enlargment," Sciences Po publications info:hdl:2441/2500, Sciences Po.
  3. Raouf, BOUCEKKINE & Fernando, DEL RIO & Blanca, MARTINEZ, 2006. "Technological Progress, Obsolescence and Depreciation," Discussion Papers (ECON - Département des Sciences Economiques) 2006015, Université catholique de Louvain, Département des Sciences Economiques.
  4. Nicholas Apergis & John Sorros, 2013. "The role of fixed capital depreciations for TFP growth: evidence from firm level panel data estimates," Journal of Economics and Finance, Springer, vol. 37(4), pages 606-621, October.

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