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Obsolescence and modernization in the growth process

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

Abstract

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.

Suggested Citation

  • BOUCEKKINE, Raouf & del RIO, Fernando & LICANDRO, Omar, 2002. "Obsolescence and modernization in the growth process," LIDAM Discussion Papers CORE 2002067, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2002067
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    References listed on IDEAS

    as
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    2. 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, March.
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    7. Omar Licandro & Javier Ruiz-Castillo & Jorge Duran, 2002. "The Measurement of Growth under Embodied Technical Change," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 7-19.
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    Cited by:

    1. Lennox, James A. & Witajewski-Baltvilks, Jan, 2017. "Directed technical change with capital-embodied technologies: Implications for climate policy," Energy Economics, Elsevier, vol. 67(C), pages 400-409.
    2. del Rio, Fernando, 2010. "Investment-specific technical progress, capital obsolescence and job creation," Labour Economics, Elsevier, vol. 17(1), pages 248-257, January.
    3. Raouf Boucekkine & David De la Croix & Omar Licandro, 2011. "Vintage Capital Growth Theory: Three Breakthroughs," Working Papers 565, Barcelona School of Economics.
    4. Bondarev, Anton & Greiner, Alfred, 2019. "Endogenous Growth And Structural Change Through Vertical And Horizontal Innovations," Macroeconomic Dynamics, Cambridge University Press, vol. 23(1), pages 52-79, January.
    5. Tatsuro Iwaisako & Koichi Futagami, 2013. "Patent protection, capital accumulation, and economic growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 631-668, March.
    6. 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.
    7. Fabrice Collard & Omar Licandro, 2020. "The neoclassical model and the welfare costs of selection," Discussion Papers 2020/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    8. Felbermayr Gabriel J & Licandro Omar, 2005. "The Underestimated Virtues of the Two-sector AK Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-19, September.
    9. Gabriel J Felbermayr & Omar Licandro, 2002. "Embodied technical change in a two-sector AK model," Macroeconomics 0210001, University Library of Munich, Germany.
    10. Jorge Duran & Omar Licandro, 2015. "Is the output growth rate in NIPA a welfare measure?," Discussion Papers 2015/18, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    11. Fernando Rio & Antonio Sampayo, 2014. "Obsolescence and productivity," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 13(3), pages 195-216, December.
    12. Raouf Boucekkine & Blanca Martínez & Cagri Saglam, 2006. "The Development Problem under Embodiment," Review of Development Economics, Wiley Blackwell, vol. 10(1), pages 42-58, February.
    13. Omar Licandro, 2015. "Firm Dynamics in the Neoclassical Growth Model," Discussion Papers 2015/17, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    14. Eicher, Theo & García-Peñalosa, Cecilia, 2008. "Endogenous strength of intellectual property rights: Implications for economic development and growth," European Economic Review, Elsevier, vol. 52(2), pages 237-258, February.
    15. Ngai, Liwa Rachel & Samaniego, Roberto, 2007. "On the Long run Determinants of Industry TFP Growth Rates," CEPR Discussion Papers 6408, C.E.P.R. Discussion Papers.
    16. Raurich, Xavier & Seegmuller, Thomas, 2019. "On the interplay between speculative bubbles and productive investment," European Economic Review, Elsevier, vol. 111(C), pages 400-420.
    17. Bruno de Oliveira Cruz & Raouf Boucekkine, 2006. "Technological Progress and Investment Microeconomic Foundations and Macroeconomic Implications," Discussion Papers 1170, Instituto de Pesquisa Econômica Aplicada - IPEA.
    18. Funk, Peter, 2008. "Entry and growth in a perfectly competitive vintage model," Journal of Economic Theory, Elsevier, vol. 138(1), pages 211-236, January.
    19. Kizuku Takao, 2014. "Dynamic Analysis of an Endogenous Growth Model with Investment-specific Technological Change," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 129-136, March.
    20. Fung, Ka Wai Terence & Lau, Chi Keung Marco, 2013. "Financial Development, Econmic Growth and R&D Cyclical Movement," MPRA Paper 52567, University Library of Munich, Germany.
    21. HRITONENKO, Natali & YATSENKO, Yuri, 2011. "Sustainable growth and modernization under environmental hazard and adaptation," LIDAM Discussion Papers CORE 2011025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    22. Bianco, Dominique, 2007. "An Endogenous Growth Model with Embodied Technical Change without Scale Effects," MPRA Paper 6571, University Library of Munich, Germany, revised 04 Jan 2008.

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    More about this item

    Keywords

    Shumpeterian growth; creative destruction; embodiment; obsolescence; modernization;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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