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Convergence in neoclassical vintage capital growth models

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  • Brett D. Berger
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    Abstract

    Most growth models assume capital is homogeneous. This contradicts intuition and empirical evidence that the majority of technology is embodied in the capital stock. Classic papers from the late 1950's and 1960's show that non-optimization models display the same asymptotic growth rates whether technology is embodied (vintage capital) or disembodied. This paper uses new numerical optimization techniques to solve for the entire time paths of the key economic variables for optimization versions of the three main types of vintage capital models. The conclusion is that although steady state growth rates may be the same, the transition paths, especially as characterized by convergence rates, vary greatly between the vintage and non-vintage capital models.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 713.

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    Date of creation: 2001
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    Handle: RePEc:fip:fedgif:713

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    Related research

    Keywords: Productivity ; Technology ; Econometric models;

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    1. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," CEPR Discussion Papers 1350, C.E.P.R. Discussion Papers.
    2. Edmond S. Phelps, 1962. "Substitution, Fixed Proportions, Growth and Distribution," Cowles Foundation Discussion Papers 133, Cowles Foundation for Research in Economics, Yale University.
    3. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1.
      • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1.
    4. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
    5. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
    6. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-98, June.
    7. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
    8. Ramanathan, R, 1973. "Adjustment Time in the Two-Sector Growth Model with Fixed Coefficients," Economic Journal, Royal Economic Society, vol. 83(332), pages 1236-44, December.
    9. Paul Evans, 1997. "How Fast Do Economies Converge?," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 219-225, May.
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    Cited by:
    1. Brett D. Berger, 2002. "Finding numerical results to large scale economic models using path-following algorithms: a vintage capital example," International Finance Discussion Papers 728, Board of Governors of the Federal Reserve System (U.S.).

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