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Capital quality improvement and the sources of growth in the euro area

  • Sakellaris, Plutarchos
  • Vijselaar, Focco

Capital quality improvement is a general phenomenon. Therefore quality correction is needed in price indexes. There is substantial evidence of biases in the official price indexes of capital equipment. We apply to euro area statistics estimates of these biases based on US data thus deriving quality-adjusted price indexes. Adjusted for quality, productive capital stocks of equipment and software grow on average 3 percentage points faster annually - a doubling of their growth rates. Quality-adjusted output grows 0.46 percentage points faster annually - a 20 percent increase. In terms of growth accounting, quality adjustment subtracts 11 percentage points from the share of TFP in aggregate growth and adds them to the share of equipment stock. For the 1990s only the difference is even higher: 14 percentage points. When all is told, embodied technological change accounts for 46 percent of (quality-adjusted) output growth in the euro area over the period 1982 to 2000. JEL Classification: O3, O47, D24, E22

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Paper provided by European Central Bank in its series Working Paper Series with number 0368.

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Date of creation: Jun 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040368
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  1. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, July.
  2. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  3. Karl Whelan, 2002. "Computers, obsolescence, and productivity," Open Access publications 10197/204, School of Economics, University College Dublin.
  4. Karl Whelan, 2000. "Computers, obsolescence, and productivity," Finance and Economics Discussion Series 2000-06, Board of Governors of the Federal Reserve System (U.S.).
  5. Francesco Daveri, . "Is Growth an Information Technology Story in Europe Too?," EPRU Working Paper Series 00-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  6. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  7. Andreas Hornstein & Per Krusell, 1996. "Can Technology Improvements Cause Productivity Slowdowns?," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 209-276 National Bureau of Economic Research, Inc.
  8. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  9. repec:dgr:rugggd:199628 is not listed on IDEAS
  10. Whelan, Karl, 2002. "A Guide to U.S. Chain Aggregated NIPA Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 217-33, June.
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