The Vintage Effect in TFP Growth: An Analysis of the Age Structure of Capital
AbstractThe 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. A proposition proves that Nelson's (1964) formula is wrong. 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 vintage-adjusted TFP growth is significantly lower than unadjusted TFP growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9768.
Date of creation: Jun 2003
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Publication status: published as Gittleman, Maury & ten Raa, Thijs & Wolff, Edward N., 2006. "The vintage effect in TFP-growth: An analysis of the age structure of capital," Structural Change and Economic Dynamics, Elsevier, vol. 17(3), pages 306-328, September.
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- Gittleman, Maury & ten Raa, Thijs & Wolff, Edward N., 2006. "The vintage effect in TFP-growth: An analysis of the age structure of capital," Structural Change and Economic Dynamics, Elsevier, vol. 17(3), pages 306-328, September.
- Thijs ten Raa & Ed Wolff, 2003. "The vintage effect in TFP-growth: An analysis of the age structure of capital," ERSA conference papers ersa03p11, European Regional Science Association.
- Gittleman, M. & Raa, T. ten & Wolff, E.N., 2006. "The vintage effect in TFP-growth: An analysis of the age structure of capital," Open Access publications from Tilburg University urn:nbn:nl:ui:12-192963, Tilburg University.
- Gittleman, M. & Raa, T. ten & Wolff, E.N., 2003. "The Vintage Effect in TPF-Growth: An Analysis of the Age Structure of Capital," Discussion Paper 2003-109, Tilburg University, Center for Economic Research.
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- O51 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-31 (All new papers)
- NEP-DEV-2003-06-16 (Development)
- NEP-INO-2003-06-16 (Innovation)
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