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Embodied technical change in a two-sector AK model

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Author Info
Gabriel J Felbermayr (European University Institute)
Omar Licandro (European University Institute)

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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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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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Related research
Keywords: subliminal extant Smith economagic gmm

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Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General

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  1. Raouf Boucekkine & Fernando del Río & Omar Licandro, 2003. "Embodied Technological Change, Learning-by-doing and the Productivity Slowdown," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(1), pages 87-98, 03. [Downloadable!] (restricted)
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  2. Hsieh, Chang-Tai, 2001. "Endogenous growth and obsolescence," Journal of Development Economics, Elsevier, vol. 66(1), pages 153-171, October. [Downloadable!] (restricted)
  3. Omar LICANDRO & Javier RUIZ-CASTILLO & Jorge DURAN, 2001. "The Measurement of Growth under Embodied Technical Change," Economics Working Papers ECO2001/14, European University Institute. [Downloadable!]
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  4. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June. [Downloadable!] (restricted)
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  5. Ellen R. McGrattan, 1998. "A defense of AK growth models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 13-27. [Downloadable!]
  6. Altug, Sumru G. & Filiztekin, Alpay, 1999. "Estimates of the Returns to Scale for US Manufacturing," CEPR Discussion Papers 2121, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. 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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  8. 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. [Downloadable!] (restricted)
  9. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Obsolescence and Modernization in the Growth Process," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2002043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  10. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February. [Downloadable!] (restricted)
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