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Why capital maintenance should be a key development tool ?

Author

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  • Raouf, BOUCEKKINE

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

  • Blanca, MARTINEZ
  • Cagri, SAGLAM

Abstract

We study optimal growth model à la Nelson and Phelps (1966) where labor resources can be allocated either to production, technology adoption or capital maintenance. We first characterize the balanced growth paths of a benchmark model without maintenance. Then we introduce the maintenance activity via the depreciation rate of capital. We characterize the optimal allocation of labor across the three activities. Through maintenance deepens the technological gap by diverting labor ressources from adoption, we find that it generally increases the long run output level. Moreover we find that long term output response to policy shocks is slightly higher in the presence of maintenance.

Suggested Citation

  • Raouf, BOUCEKKINE & Blanca, MARTINEZ & Cagri, SAGLAM, 2007. "Why capital maintenance should be a key development tool ?," Discussion Papers (ECON - Département des Sciences Economiques) 2007044, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2007044
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    Keywords

    Adoption; Maintenance; Technological gap; Output gap;

    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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