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Obsolescence and modernization in the growth process

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  • BOUCEKKINE, Raouf
  • del RIO, Fernando
  • LICANDRO, Omar

Abstract

In this paper, an endogenous growth model is built up incorporating Schumpeterian growth and embodied technological progress. Under embodiment, long run growth is affected by the following effects: (i) obsolescence costs add to the user cost of capital, reducing the research effort; and (ii) the modernization of capital through investment raises the incentives to undertake R&D activities. Applied to the understanding of the growth enhancing role of both capital and R&D subsidies, we conclude that the positive effect of modernization generally more than compensate the negative effect of obsolescence.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002067.

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Date of creation: 00 Dec 2002
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Handle: RePEc:cor:louvco:2002067

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Keywords: Shumpeterian growth; creative destruction; embodiment; obsolescence; modernization;

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References

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  3. Omar Licandro & Javier Ruiz-Castillo & Jorge Duran, 2002. "The Measurement of Growth under Embodied Technical Change," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 7-19.
  4. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  5. Krusell, Per, 1998. " Investment-Specific R&D and the Decline in the Relative Price of Capital," Journal of Economic Growth, Springer, vol. 3(2), pages 131-41, June.
  6. Hsieh, Chang-Tai, 2001. "Endogenous growth and obsolescence," Journal of Development Economics, Elsevier, vol. 66(1), pages 153-171, October.
  7. 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.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  9. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  10. Pranab Bardhan and Rodrigo Priale., 1996. "Endogenous Growth Theory in a Vintage Capital Model," Center for International and Development Economics Research (CIDER) Working Papers C96-069, University of California at Berkeley.
  11. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Embodied technological change learning-by-doing and the productivity slowdown," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  12. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  13. Raouf Boucekkine & Marc Germain & Omar Licandro, . "Replacement echoes in the vintage capital growth model," Working Papers 96-16, FEDEA.
  14. Hercowitz, Zvi, 1998. "The 'embodiment' controversy: A review essay," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 217-224, February.
  15. Howitt, Peter & Aghion, Philippe, 1998. " Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth," Journal of Economic Growth, Springer, vol. 3(2), pages 111-30, June.
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Citations

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Cited by:
  1. Fung, Ka Wai Terence & Lau, Chi Keung Marco, 2013. "Financial Development, Econmic Growth and R&D Cyclical Movement," MPRA Paper 52567, University Library of Munich, Germany.
  2. Raouf Boucekkine & David De La Croix & Omar Licandro, 2011. "Vintage capital theory: Three breakthroughs," Working Papers halshs-00599074, HAL.
  3. Raouf Boucekkine & David de la Croix & Omar Licandro, 2011. "Vintage capital growth theory: Three breakthroughs," UFAE and IAE Working Papers 875.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. BOUCEKKINE, Raouf & MARTINEZ, Blanca & SAGLAM, Cagri, . "The Development problem under embodiment," CORE Discussion Papers RP -1852, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. del Rio, Fernando, 2010. "Investment-specific technical progress, capital obsolescence and job creation," Labour Economics, Elsevier, vol. 17(1), pages 248-257, January.
  6. Eicher, Theo & García-Peñalosa, Cecilia, 2008. "Endogenous strength of intellectual property rights: Implications for economic development and growth," European Economic Review, Elsevier, vol. 52(2), pages 237-258, February.
  7. Gabriel J Felbermayr & Omar Licandro, 2002. "Embodied technical change in a two-sector AK model," Macroeconomics 0210001, EconWPA.
  8. Tatsuro Iwaisako & Koichi Futagami, 2013. "Patent protection, capital accumulation, and economic growth," Economic Theory, Springer, vol. 52(2), pages 631-668, March.
  9. Funk, Peter, 2008. "Entry and growth in a perfectly competitive vintage model," Journal of Economic Theory, Elsevier, vol. 138(1), pages 211-236, January.
  10. HRITONENKO, Natali & YATSENKO, Yuri, 2011. "Sustainable growth and modernization under environmental hazard and adaptation," CORE Discussion Papers 2011025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Ngai, Liwa Rachel & Samaniego, Roberto, 2007. "On the Long run Determinants of Industry TFP Growth Rates," CEPR Discussion Papers 6408, C.E.P.R. Discussion Papers.
  12. Bianco, Dominique, 2007. "An Endogenous Growth Model with Embodied Technical Change without Scale Effects," MPRA Paper 6571, University Library of Munich, Germany, revised 04 Jan 2008.

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