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The Vintage Effect in TPF-Growth: An Analysis of the Age Structure of Capital

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  • Gittleman, M.
  • Raa, T. ten
  • Wolff, E.N.

    (Tilburg University, Center for Economic Research)

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

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2003-109.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:2003109

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Web page: http://center.uvt.nl

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Keywords: capital; productivity; growth; expenditure; tfp;

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  1. Robert J. Gordon, 1980. "The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior," NBER Working Papers 0427, National Bureau of Economic Research, Inc.
  2. Ariel Pakes & Mark Schankerman, 1980. "An Exploration into the Determinants of Research Intensity," NBER Working Papers 0438, National Bureau of Economic Research, Inc.
  3. 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.
  4. Solow, Robert M, 1988. "Growth Theory and After," American Economic Review, American Economic Association, vol. 78(3), pages 307-17, June.
  5. Jorgenson, Dale W., 1966. "The Embodiment Hypothesis," Scholarly Articles 3403063, Harvard University Department of Economics.
  6. John A. Tatom, 1979. "The productivity problem," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-16.
  7. Dale W. Jorgenson, 1966. "The Embodiment Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 74, pages 1.
  8. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
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Cited by:
  1. Echevarría Olave, Cruz Angel & Iza Padilla, María Amaya, 2006. "Life Expectancy, Human Capital, Social Security and Growth," DFAEII Working Papers 2005-17, University of the Basque Country - Department of Foundations of Economic Analysis II.
  2. Richard Harris & John Moffat, 2011. "Plant-level determinants of total factor productivity in Great Britain, 1997-2006," LSE Research Online Documents on Economics 33561, London School of Economics and Political Science, LSE Library.
  3. 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).
  4. 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.
  5. Davide Piacentino, 2008. "Productivity, Infrastructures and Convergence: Panel Data Evidence on Italian Regions," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2008(2), pages 5-26.

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