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Capital maintenance Vs technology adoption under embodied technical progress

Listed author(s):
  • BOUCEKKINE, Raouf
  • MARTINEZ, Blanca
  • SAGLAM, Cagri

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 amplificationpropagation 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.

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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 2006058.

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Date of creation: 00 Jun 2006
Handle: RePEc:cor:louvco:2006058
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  1. Collard, Fabrice & Kollintzas, Tryphon, 2000. "Maintenance, Utilization, and Depreciation along the Business Cycle," CEPR Discussion Papers 2477, C.E.P.R. Discussion Papers.
  2. Raouf Boucekkine & Omar Licandro & Luis A. Puch & Fernando del Rio, 2003. "Vintage capital and the dynamics of the AK model," Documentos de Trabajo del ICAE 0310, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  3. BOUCEKKINE, Raouf & RUIZ-TAMARIT, Ramon, "undated". "Capital maintenance and investment: complements or substitutes?," CORE Discussion Papers RP 1630, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Ricardo J. Caballero & Adam B. Jaffe, 1993. "How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth," NBER Working Papers 4370, National Bureau of Economic Research, Inc.
  5. Raouf Boucekkine & Blanca Martínez & CARGI SAGLAM, 2003. "Technology Adoption, Capital Maintenance And The Technological Gap," Working Papers. Serie AD 2003-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January.
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  8. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
  9. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
  10. Benhabib, Jess & Rustichini, Aldo, 1990. "Vintage Capital, Investment And Growth," Working Papers 90-22, C.V. Starr Center for Applied Economics, New York University.
  11. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, vol. 74(2), pages 333-348, June.
  12. Ellen R. McGrattan & James A. Schmitz, 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
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  18. Grether, Jean-Marie, 1999. "Determinants of Technological Diffusion in Mexican Manufacturing: A Plant-Level Analysis," World Development, Elsevier, vol. 27(7), pages 1287-1298, July.
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