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The vintage effect in tfp-growth: an analysis of the age structure of capital

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Author Info
Raa, M.H. ten
Gittleman, M.
Wolff, E.N. (Tilburg University, Center for Economic Research)

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

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

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Keywords: tfp;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John A. Tatom, 1979. "The productivity problem," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-16. [Downloadable!]
  2. Ariel Pakes & Mark Schankerman, 1980. "An Exploration into the Determinants of Research Intensity," NBER Working Papers 0438, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Ariel Pakes & Mark Schankerman, 1984. "An Exploration into the Determinants of Research Intensity," NBER Chapters, in: R & D, Patents, and Productivity, pages 209-232 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Robert J. Gordon, 1980. "The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior," NBER Working Papers 0427, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Dale W. Jorgenson, 1966. "The Embodiment Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 74, pages 1. [Downloadable!] (restricted)
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Cited by:
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  1. 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). [Downloadable!]
  2. Cruz A. Echevarria & Amaia Iza, 2005. "Life Expectancy, Human Capital, Social Security and Growth," DFAEII Working Papers 200517, University of the Basque Country - Department of Foundations of Economic Analysis II, revised 16 Nov 2006. [Downloadable!]
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