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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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1759.

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Handle: RePEc:cor:louvrp:-1759

Note: In : Journal of Development Economics, 77, 153-171, 2005.
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References

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  1. Pranab Bardhan and Rodrigo Priale., 1996. "Endogenous Growth Theory in a Vintage Capital Model," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C96-069, University of California at Berkeley.
  2. Omar LICANDRO & Javier RUIZ-CASTILLO & Jorge DURAN, 2002. "The Measurement of Growth under Embodied Technical Change," Discussion Papers (REL - Recherches Economiques de Louvain) 2002011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Howitt, Peter & Aghion, Philippe, 1998. " Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth," Journal of Economic Growth, Springer, Springer, vol. 3(2), pages 111-30, June.
  4. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, American Economic Association, vol. 87(3), pages 342-62, June.
  5. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 568, China Economics and Management Academy, Central University of Finance and Economics.
  6. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  7. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  8. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Boucekkine, R. & Germain, M. & Licandro, O., . "Replacement echoes in the vintage capital growth model," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1275, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Raouf Boucekkine & Fernando del Río & Omar Licandro, 2003. "Embodied Technological Change, Learning-by-doing and the Productivity Slowdown," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 105(1), pages 87-98, 03.
  11. Krusell, Per, 1998. " Investment-Specific R&D and the Decline in the Relative Price of Capital," Journal of Economic Growth, Springer, Springer, vol. 3(2), pages 131-41, June.
  12. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  13. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  14. Hsieh, Chang-Tai, 2001. "Endogenous growth and obsolescence," Journal of Development Economics, Elsevier, Elsevier, vol. 66(1), pages 153-171, October.
  15. Wolff, Edward N, 1991. "Capital Formation and Productivity Convergence over the Long Term," American Economic Review, American Economic Association, American Economic Association, vol. 81(3), pages 565-79, June.
  16. Hercowitz, Zvi, 1998. "The 'embodiment' controversy: A review essay," Journal of Monetary Economics, Elsevier, Elsevier, vol. 41(1), pages 217-224, February.
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Citations

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Cited by:
  1. Eicher, Theo & García-Peñalosa, Cecilia, 2008. "Endogenous strength of intellectual property rights: Implications for economic development and growth," European Economic Review, Elsevier, Elsevier, vol. 52(2), pages 237-258, February.
  2. Gabriel J Felbermayr & Omar Licandro, 2002. "Embodied technical change in a two-sector AK model," Macroeconomics, EconWPA 0210001, EconWPA.
  3. Raouf Boucekkine & David de la Croix & Omar Licandro, 2011. "Vintage capital growth theory: Three breakthroughs," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 875.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Raouf Boucekkine & Blanca Martínez & Cagri Saglam, 2006. "The Development Problem under Embodiment," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(1), pages 42-58, 02.
  5. 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.
  6. del Rio, Fernando, 2010. "Investment-specific technical progress, capital obsolescence and job creation," Labour Economics, Elsevier, Elsevier, vol. 17(1), pages 248-257, January.
  7. Tatsuro Iwaisako & Koichi Futagami, 2013. "Patent protection, capital accumulation, and economic growth," Economic Theory, Springer, Springer, vol. 52(2), pages 631-668, March.
  8. HRITONENKO, Natali & YATSENKO, Yuri, 2011. "Sustainable growth and modernization under environmental hazard and adaptation," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2011025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Gabriel J. Felbermayr & Omar Licandro, . "The underestimated virtues of the two-sector AK model," Working Papers 2003-13, FEDEA.
  10. Ngai, Liwa Rachel & Samaniego, Roberto, 2007. "On the Long run Determinants of Industry TFP Growth Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6408, C.E.P.R. Discussion Papers.
  11. Raouf Boucekkine & David De La Croix & Omar Licandro, 2011. "Vintage capital theory: Three breakthroughs," Working Papers halshs-00599074, HAL.
  12. Bruno de Oliveira Cruz & Raouf Boucekkine, 2006. "Technological Progress and Investment Microeconomic Foundations and Macroeconomic Implications," Discussion Papers, Instituto de Pesquisa Econômica Aplicada - IPEA 1170, Instituto de Pesquisa Econômica Aplicada - IPEA.
  13. 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.
  14. Funk, Peter, 2008. "Entry and growth in a perfectly competitive vintage model," Journal of Economic Theory, Elsevier, Elsevier, vol. 138(1), pages 211-236, January.

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