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Capital Maintenance Vs Technology Adopton under Embodied Technical Progress

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  • Raouf, BOUCEKKINE

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

  • Blanca, MARTINEZ
  • Cagri, SAGLAM

Abstract

We study an optimal growth model with one-hoss-shay vintage capital, where labor resources can be allocated freely either to production, technology adoption or capital maintenance. Technological progress is partly embodied. Adoption labor increases the level of embodied technical progress. First, we are able to disentangle the amplification-propagation role of maintenance in business fluctuations : in the short run, the response of the model to transitory shocks on total factor productivity in the final good sector are definitely much sharper compared to the counterpart model without maintenance but with the same average depreciation rate. Moreover, the one-hoss shay technology is shown to reinforce this amplification-propagation mechanism. We also find that accelerations in embodied technical progress should be responded by a gradual adoption effort, and capital maintenance should be the preferred instrument in the short run.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006030.

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Length: 40
Date of creation: 01 Jun 2006
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Handle: RePEc:ctl:louvec:2006030

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Keywords: Technology adoption; Maintenance; Vintage capital; Dynamics;

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  1. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
  2. Raouf Boucekkine & Blanca Martínez & CARGI SAGLAM, 2003. "Technology Adoption, Capital Maintenance And The Technological Gap," Working Papers. Serie AD 2003-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Licandro, Omar & Puch, Luis A., . "Capital utilization: maintenance costs and the business cycle," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3917, Universidad Carlos III de Madrid.
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  7. Raouf Boucekkine & Marc Germain & Omar Licandro, . "Replacement echoes in the vintage capital growth model," Working Papers 96-16, FEDEA.
  8. Boucekkine, Raouf & Licandro, Omar & Puch, Luis A. & del Rio, Fernando, 1999. "Vintage Capital and the Dynamics of the AK Model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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  19. BOUCEKKINE, Raouf & RUIZ-TAMARIT Ramon, 2001. "Capital Maintenance and Investment : Complements or Substitutes ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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