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Capital Obsolescence, Growth Accounting and Total Factor Productivity

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  • Patrick Musso

Abstract

The stability of capital lifespan over time is a key assumption of growth accounting studies. However, many empirical works refute this hypothesis and suggest that the average service-life of capital goods has shown a decrease in the advanced economies since the 1970s. I show in this paper that this acceleration in capital obsolescence could strongly impact on traditional measures of Total Factor Productivity. For instance, a moderate increase in the capital retirement rate since the early 1970s could explain almost all the productivity slowdown observed in the US economy in the period 1974-2000. JEL Classification: C80, E17, O47.

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Bibliographic Info

Article provided by Presses de Sciences-Po in its journal Revue de l'OFCE.

Volume (Year): 97 bis (2006)
Issue (Month): 5 ()
Pages: 217-233

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Handle: RePEc:cai:reofsp:reof_073_0217

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Web page: http://www.cairn.info/revue-de-l-ofce.htm

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Keywords: capital obsolescence; total factor productivity; productivity slowdown; mismeasurement hypothesis;

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  1. Stiroh, Kevin J, 1998. "Computers, Productivity, and Input Substitution," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(2), pages 175-91, April.
  2. Iain Cockburn & Murray Frank, 1992. "Market Conditions and Retirement of Physical Capital: Evidence fron Oil Tankers," NBER Working Papers 4194, National Bureau of Economic Research, Inc.
  3. Jeremy Greenwood & Boyan Jovanovic, 1998. "Accounting for Growth," NBER Working Papers 6647, National Bureau of Economic Research, Inc.
    • Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224 National Bureau of Economic Research, Inc.
  4. Oliner, Stephen D, 1996. "New Evidence on the Retirement and Depreciation of Machine Tools," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(1), pages 57-77, January.
  5. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
  6. Stephen D. Oliner, 1993. "Constant-Quality Price Change , Depreciation, and Retirement of Mainframe Computers," NBER Chapters, in: Price Measurements and Their Uses, pages 19-62 National Bureau of Economic Research, Inc.
  7. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
  8. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, Econometric Society, vol. 42(3), pages 393-423, May.
  9. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 1-32, March.
  10. Edwin Dean & Michael Harper, 2001. "The BLS Productivity Measurement Program," NBER Chapters, in: New Developments in Productivity Analysis, pages 55-84 National Bureau of Economic Research, Inc.
  11. repec:sae:niesru:v:147:y::i:1:p:84-96 is not listed on IDEAS
  12. Wadhwani, Sushil & Wall, Martin, 1986. "The UK Capital Stock--New Estimates of Premature Scrapping," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 2(3), pages 44-55, Autumn.
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