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Capital Maintenance versus Technology Adoption Under Embodied Technical Progress

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  • Boucekkine Raouf

    () (CORE and Department of Economics, Université catholique de Louvain, Belgium)

  • Martínez Blanca

    () (University of Alicante, Spain)

  • Saglam Cagri

    () (Bilkent University, Turkey)

Abstract

We study an optimal growth model with one-hoss-shay vintage capital, where labor resources can be allocated freely either to production, technology adoption or capital maintenance. Technological progress is partly embodied. Adoption labor increases the level of embodied technical progress. First, we are able to disentangle the amplification-propagation role of maintenance in business fluctuations: in the short run, the response of the model to transitory shocks on total factor productivity in the final good sector are definitely much sharper compared to the counterpart model without maintenance but with the same average depreciation rate. Moreover, the one-hoss shay technology is shown to reinforce this amplification-propagation mechanism. We also find that accelerations in embodied technical progress should be responded by a gradual adoption effort, and capital maintenance should be the preferred instrument in the short run.

Suggested Citation

  • Boucekkine Raouf & Martínez Blanca & Saglam Cagri, 2006. "Capital Maintenance versus Technology Adoption Under Embodied Technical Progress," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-33, September.
  • Handle: RePEc:bpj:bejmac:v:contributions.6:y:2006:i:1:n:7
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    Cited by:

    1. Raúl Fuentes Z. & Javier Scavia D. & Juan Berríos P., 2014. "About the long-term distributional impact of embodied technological progress (without spillover effects) in developing countries," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 17(3), pages 28-54, December.

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