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Computers, Obsolescence, And Productivity

  • Karl Whelan

This paper develops a new technique for measuring the effect of computer usage on U.S. productivity growth. Standard National Income and Product Accounts (NIPA) measures of the computer capital stock, which are constructed by weighting past investments according to a schedule for economic depreciation (the rate at which capital loses value as it ages), are shown to be inappropriate for growth accounting because they do not capture the effect of a unit of computer capital on productivity. This is due to technological obsolescence: machines that are still productive are retired because they are no longer near the technological frontier, and anticipation of retirement affects economic depreciation. Using a model that incorporates obsolescence, alternative stocks are developed that imply a larger computer-usage effect. This effect, together with the direct effect of increased productivity in the computer-producing sector, accounted for the improvement in U.S. productivity growth over 1996-1998 relative to the previous twenty years. © 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 84 (2002)
Issue (Month): 3 (August)
Pages: 445-461

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Handle: RePEc:tpr:restat:v:84:y:2002:i:3:p:445-461
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  1. Triplett, Jack E, 1996. "Depreciation in Production Analysis and in Income and Wealth Accounts: Resolution of an Old Debate," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 93-115, January.
  2. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
  3. Austan Goolsbee, 1998. "The Business Cycle, Financial Performance, and the Retirement of Capital Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 474-496, April.
  4. Stephen D. Oliner & Daniel E. Sichel, 1994. "Computers and Output Growth Revisited: How Big Is the Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 273-334.
  5. Stiroh, Kevin J, 1998. "Computers, Productivity, and Input Substitution," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 175-91, April.
  6. 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.
  7. Hulten, Charles R & Wykoff, Frank C, 1996. "Issues in the Measurement of Economic Depreciation: Introductory Remarks," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 10-23, January.
  8. Stephen D. Oliner, 1990. "Constant-quality price change, depreciation, and retirement of mainframe computers," Working Paper Series / Economic Activity Section 110, Board of Governors of the Federal Reserve System (U.S.).
  9. Kevin J. Stiroh & Dale W. Jorgenson, 1999. "Information Technology and Growth," American Economic Review, American Economic Association, vol. 89(2), pages 109-115, May.
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