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Embodiment, Productivity, and the Age Distribution of Capital

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Author Info
Whelan, Karl

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Abstract

An important theme in modern research on productivity has been that technological progress may be embodied in capital in the sense that traditional measures of TFP growth reflect unmeasured improvements in the quality of capital inputs as well as pure disembodied technological progress. It is commonly believed that an implication of this embodiment hypothesis is that there should be a negative relationship between measured TFP and the age of the measured capital stock. This paper presents empirical evidence which suggests that an increase in the age of the capital stock is actually associated with higher TFP growth. This surprising result may be due to the presence of a mis-measurement normally overlooked in this literature: With mis-measured improvements in capital quality, the usual depreciation rates used to construct empirical capital stocks are incorrect for growth accounting. This effect dominates the usual average age effect.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5912.

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Date of creation: May 2005
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Handle: RePEc:pra:mprapa:5912

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Related research
Keywords: Embodiment Producivity

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Find related papers by JEL classification:
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment

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  1. Plutarchos Sakellaris, 2001. "Production function estimation with industry capacity data," Finance and Economics Discussion Series 2001-06, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Wolff, Edward N, 1996. "The Productivity Slowdown: The Culprit at Last? Follow-Up on Hulten and Wolff," American Economic Review, American Economic Association, vol. 86(5), pages 1239-52, December. [Downloadable!] (restricted)
  3. McHugh, Richard & Lane, Julia, 1983. "The Embodiment Hypothesis: An Interregional Test," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 323-27, May. [Downloadable!] (restricted)
  4. Hulten, Charles R. & Wykoff, Frank C., 1981. "The estimation of economic depreciation using vintage asset prices : An application of the Box-Cox power transformation," Journal of Econometrics, Elsevier, vol. 15(3), pages 367-396, April. [Downloadable!] (restricted)
  5. Stiroh, Kevin J, 2002. "Are ICT Spillovers Driving the New Economy?," Review of Income and Wealth, Blackwell Publishing, vol. 48(1), pages 33-57, March. [Downloadable!] (restricted)
  6. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  7. Karl Whelan, 2002. "Computers, Obsolescence, And Productivity," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 445-461, August. [Downloadable!] (restricted)
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  8. McHugh, Richard & Lane, Julia, 1987. "The Age of Capital, the Age of Utilized Capital, and Tests of the Embodiment Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 362-67, May. [Downloadable!] (restricted)
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  9. 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)
  10. Hulten, Charles R & Wykoff, Frank C, 1996. "Issues in the Measurement of Economic Depreciation: Introductory Remarks," Economic Inquiry, Oxford University Press, vol. 34(1), pages 10-23, January.
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