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The vintage effect in TFP-growth: An analysis of the age structure of capital

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  • Gittleman, Maury
  • ten Raa, Thijs
  • Wolff, Edward N.

Abstract

The age structure of capital plays an important role in the measurement of productivity.It has been argued that the slowdown in the 1970 s can be ascribed to the aging of the stock of capital.In this paper we incorporate the age structure in productivity measurement.One proposition proves that Nelson s (1964) formula is only an approximation.Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital.Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows.The analysis rests on a rigorous accounting for vintages.We translate the Bureau of Economic Analysis age of capital data into a measure of rates of obsolescence.Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data.The results indicate that the use of capital stock in efficiency units does cause some smoothing of Total Factor Productivity growth over time.In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintageadjusted TFP growth is significantly lower than unadjusted TFP growth.The measured productivity slowdown of the 1970s is somewhat ameliorated.

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Bibliographic Info

Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 17 (2006)
Issue (Month): 3 (September)
Pages: 306-328

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Handle: RePEc:eee:streco:v:17:y:2006:i:3:p:306-328

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Web page: http://www.elsevier.com/locate/inca/525148

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  1. Solow, Robert M., 1987. "Growth Theory and After," Nobel Prize in Economics documents 1987-1, Nobel Prize Committee.
  2. Robert J. Gordon, 1980. "The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior," NBER Working Papers 0427, National Bureau of Economic Research, Inc.
  3. Jorgenson, Dale W., 1966. "The Embodiment Hypothesis," Scholarly Articles 3403063, Harvard University Department of Economics.
  4. Dale W. Jorgenson, 1966. "The Embodiment Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 74, pages 1.
  5. Wolff, Edward N, 1991. "Capital Formation and Productivity Convergence over the Long Term," American Economic Review, American Economic Association, vol. 81(3), pages 565-79, June.
  6. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
  7. John A. Tatom, 1979. "The productivity problem," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-16.
  8. Ariel Pakes & Mark Schankerman, 1984. "An Exploration into the Determinants of Research Intensity," NBER Chapters, in: R & D, Patents, and Productivity, pages 209-232 National Bureau of Economic Research, Inc.
  9. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  10. Peter K. Clark, 1979. "Issues in the Analysis of Capital Formation and Productivity Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 423-446.
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Cited by:
  1. Echevarria, Cruz A. & Iza, Amaia, 2006. "Life expectancy, human capital, social security and growth," Journal of Public Economics, Elsevier, vol. 90(12), pages 2323-2349, December.
  2. TOKUI Joji & INUI Tomohiko & Young Gak KIM, 2008. "Embodied Technological Progress and the Productivity Slowdown in Japan," Discussion papers 08017, Research Institute of Economy, Trade and Industry (RIETI).
  3. Davide Piacentino, 2008. "Productivity, Infrastructures and Convergence: Panel Data Evidence on Italian Regions," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2008(2), pages 5-26.
  4. Taiji Hagiwara & Yoichi Matsubayashi, 2014. "Capital Accumulation, Vintage and Productivity: The Japanese Experience," Discussion Papers 1418, Graduate School of Economics, Kobe University.
  5. Richard Harris & John Moffat, 2011. "Plant-level Determinants of Total Factor Productivity in Great Britain, 1997-2006," SERC Discussion Papers 0064, Spatial Economics Research Centre, LSE.
  6. Joseph Byrne & Giorgio Fazio & Davide Piacentino, 2009. "Total Factor Productivity Convergence among Italian Regions: Some Evidence from Panel Unit Root Tests," Regional Studies, Taylor & Francis Journals, vol. 43(1), pages 63-76.

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