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Obsolescence and modernization in the growth process

  • BOUCEKKINE, Raouf
  • del RIO, Fernando
  • LICANDRO, Omar

In this paper, an endogenous growth model is built up incorporating Schumpeterian growth and embodied technological progress. Under embodiment, long run growth is affected by the following effects: (i) obsolescence costs add to the user cost of capital, reducing the research effort; and (ii) the modernization of capital through investment raises the incentives to undertake R&D activities. Applied to the understanding of the growth enhancing role of both capital and R&D subsidies, we conclude that the positive effect of modernization generally more than compensate the negative effect of obsolescence.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002067.

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Date of creation: 00 Dec 2002
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Handle: RePEc:cor:louvco:2002067
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  1. Krusell, Per, 1998. "Investment-Specific R&D and the Decline in the Relative Price of Capital," Journal of Economic Growth, Springer, vol. 3(2), pages 131-41, June.
  2. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  3. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  4. Hsieh, Chang-Tai, 2001. "Endogenous growth and obsolescence," Journal of Development Economics, Elsevier, vol. 66(1), pages 153-171, October.
  5. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  6. Raouf Boucekkine & Fernando del Río & Omar Licandro, 2003. "Embodied Technological Change, Learning-by-doing and the Productivity Slowdown," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 87-98, 03.
  7. Bardhan, Pranab & Priale, Rodrigo, 1996. "Endogenous Growth Theory in a Vintage Capital Model," Center for International and Development Economics Research, Working Paper Series qt1363t4jg, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  9. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  10. J. Bradford De Long & Lawrence H. Summers, . "Equipment Investment and Economic Growth," J. Bradford De Long's Working Papers _122, University of California at Berkeley, Economics Department.
  11. Raouf Boucekkine & Marc Germain & Omar Licandro, . "Replacement echoes in the vintage capital growth model," Working Papers 96-16, FEDEA.
  12. Omar Licandro & Jorge Durán & Javier Ruiz-Castillo, . "The Measurement of Growth under Embodied Technical Change," Working Papers 2001-09, FEDEA.
  13. Hercowitz, Zvi, 1998. "The 'embodiment' controversy: A review essay," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 217-224, February.
  14. Wolff, Edward N, 1991. "Capital Formation and Productivity Convergence over the Long Term," American Economic Review, American Economic Association, vol. 81(3), pages 565-79, June.
  15. R. M. Solow & J. Tobin & C. C. von Weizsäcker & M. Yaari, 1966. "Neoclassical Growth with Fixed Factor Proportions," Review of Economic Studies, Oxford University Press, vol. 33(2), pages 79-115.
  16. Howitt, Peter & Aghion, Philippe, 1998. "Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth," Journal of Economic Growth, Springer, vol. 3(2), pages 111-30, June.
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