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Embodiment, productivity, and the age distribution of capital

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  • Whelan, Karl

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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Suggested Citation

  • Whelan, Karl, 2007. "Embodiment, productivity, and the age distribution of capital," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 724-740, December.
  • Handle: RePEc:eee:jmacro:v:29:y:2007:i:4:p:724-740
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    References listed on IDEAS

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    Cited by:

    1. Taiji Hagiwara & Yoichi Matsubayashi, 2014. "Capital Accumulation, Vintage and Productivity: The Japanese Experience," Discussion Papers 1418, Graduate School of Economics, Kobe University.
    2. Hirukawa, Masayuki & Ueda, Masako, 2008. "Venture Capital and Industrial ''Innovation''," CEPR Discussion Papers 7089, C.E.P.R. Discussion Papers.
    3. Yasmina Rim Limam, Stephen M. Miller and Giampaolo Garzarelli, 2016. "Output Decomposition in the Presence of Input Quality Effects: A Stochastic Frontier Approach," Working Papers 613, Economic Research Southern Africa.
    4. Croce, Annalisa & Martí, José & Murtinu, Samuele, 2013. "The impact of venture capital on the productivity growth of European entrepreneurial firms: ‘Screening’ or ‘value added’ effect?," Journal of Business Venturing, Elsevier, vol. 28(4), pages 489-510.

    More about this item

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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