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A Schumpeterian Vintage Capital Model: An Attempt at Synthesis

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Author Info

  • Boucekkine, Raouf

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • del Rio, Fernando

    (Universidade de Santiago de Compostela)

  • Licandro, Omar

    (FEDEA, Spain)

Abstract

In this paper, we build up a general equilibrium model explicitly incorporating Schumpeterian growth à la Aghion and Howitt (1992) and a vintage capital structure in line with Solow (1960). In this set-up, we show that the investment rate is a fundamental determinant of the profitability of R&D. We characterize the balanced growth paths. We show that, although the model can generate multiple equilibria due to the presence of strategic complementarities, the unique stable equilibrium is indeed dominated by strategic substituabilities. At this equilibrium, the higher is the investment rate, the more resources are devoted to R&D, the faster the economy grows, the lower is the average age of capital and the higher is the rate of decline of the relative price of capital. Subsidizing both capital and research stimulates growth. The embodiment of technological progress does not necessarily affect negatively the efficiency of capital subsidy through the typical obsolescence costs because of the modernization effect of investment in such a context.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2000023.

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Length: 27
Date of creation: 01 Sep 2000
Date of revision:
Handle: RePEc:ctl:louvir:2000023

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Related research

Keywords: vintage capital; R&D; creative destruction; embodiment; obsolescence; modernization of capital;

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Cited by:
  1. de la Croix, David & Boucekkine, Raouf, 2000. "Information technologies, embodiment and growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Vincent BODART & Paul REDING, 2001. "Do Foreign Exchange Markets Matter Dor Industry Stock Returns ? An empirical investigation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001016, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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