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Capital Maintenance and Investment : Complements or Substitutes ?

  • BOUCEKKINE, Raouf

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • RUIZ-TAMARIT Ramon

    (Universitat de Valencia (Spain))

This paper is concerned with the theoretical properties of demand for capital maintenance services. To this end, we consider two investment problems incorporating maintenance services and we analyse their steady state equilibria. At first, we shwo that if no variable capital utilization rate is allowed, investment and maintenance expenditures have the same qualitative properties, and so cannot be regarded as gross substitutes. If a variable rate of capital utilization is allowed, the occurence of substitution Vs complementarity features and the comparative statics properties depend on the sensitivity of the postulated capital depreciation function with respect to both the rate of capital utilization and the maintenance expenditures ratio. We prove that the case where the elasticity with respect to maintenance expenditures is lower, gives much better shaped demand functions and fits definitely better the recent real business cycles studies.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2001012.

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Length: 30
Date of creation: 01 May 2001
Date of revision:
Handle: RePEc:ctl:louvir:2001012
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  1. Jeffrey A. Frankel & David Romer & Teresa Cyrus, 1995. "Trade and growth in East Asian countries: cause and effect?," Pacific Basin Working Paper Series 95-03, Federal Reserve Bank of San Francisco.
  2. Harrison, Ann, 1991. "Openness and growth : a time series, cross-country analysis for developing countries," Policy Research Working Paper Series 809, The World Bank.
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  5. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May.
  6. Rivera-Batiz, Luis A. & Romer, Paul M., 1991. "International trade with endogenous technological change," European Economic Review, Elsevier, vol. 35(4), pages 971-1001, May.
  7. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  9. Stephen L. Parente & Edward C. Prescott, 1993. "Changes in the wealth of nations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-16.
  10. Charles I. Jones, 1997. "On the Evolution of the World Income Distribution," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 19-36, Summer.
  11. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April.
  12. Amsden, Alice H., 1986. "The direction of trade -- past and present -- and the learning effects of exports to different directions," Journal of Development Economics, Elsevier, vol. 23(2), pages 249-274, October.
  13. Boyan Jovanovic, 1995. "Learning and Growth," NBER Working Papers 5383, National Bureau of Economic Research, Inc.
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