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Embodied technical change in a two-sector AK model

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  • Gabriel J Felbermayr

    (European University Institute)

  • Omar Licandro

    (European University Institute)

Abstract

In this paper, we study a two-sector version of the AK model proposed by Rebelo (1991), where constant returns to capital are confined to the investment goods sector. We show that this setup, an endogenous growth extension to the model of Greenwood, Hercowitz, and Krusell (1997), reproduces important features of the U.S. NIPA data, namely the secular downward trend of the price of equipment investment relative to non- durable consumption and the increasing ratio of real equipment investment to real output. The main difference to the one-sector AK model lies in the existence of obsolescence costs, which decrease output growth if the elasticity of intertemporal substitution is larger than the saving rate.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0210001.

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Date of creation: 01 Oct 2002
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Handle: RePEc:wpa:wuwpma:0210001

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Web page: http://128.118.178.162

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Keywords: subliminal extant Smith economagic gmm;

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  1. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Embodied technological change learning-by-doing and the productivity slowdown," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Obsolescence and Modernization in the Growth Process," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
  4. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  5. Omar Licandro & Javier Ruiz-Castillo & Jorge Duran, 2002. "The Measurement of Growth under Embodied Technical Change," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 7-19.
  6. Hsieh, Chang-Tai, 2001. "Endogenous growth and obsolescence," Journal of Development Economics, Elsevier, vol. 66(1), pages 153-171, October.
  7. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  8. Ellen R. McGrattan, 1998. "A defense of AK growth models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 13-27.
  9. Altug, S. & Filiztekin, A., 1997. "Estimates of the Returns to Scale for US Manufacturing," Papers 1997/24, Koc University.
  10. 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.
  11. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
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