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

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  • Sakellaris, Plutarchos
  • Vijselaar, Focco

Abstract

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

Suggested Citation

  • Sakellaris, Plutarchos & Vijselaar, Focco, 2004. "Capital quality improvement and the sources of growth in the euro area," Working Paper Series 368, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2004368
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    Cited by:

    1. Peter N. Ireland, 2013. "Stochastic Growth In The United States And Euro Area," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 1-24, February.
    2. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.
    3. Antonopoulos, Christos & Sakellaris, Plutarchos, 2009. "The contribution of Information and Communication Technology investments to Greek economic growth: An analytical growth accounting framework," Information Economics and Policy, Elsevier, vol. 21(3), pages 171-191, August.
    4. Bruno Tissot & Les Skoczylas, 2005. "Revisiting recent productivity developments across OECD countries," BIS Working Papers 182, Bank for International Settlements.
    5. Philipp an de Meulen & Torsten Schmidt, 2013. "Von der Euroeinführung zur Schuldenkrise: Ergebnisse einer Wachstumszerlegung für ausgewählte Länder des Euroraums," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 82(2), pages 77-96.
    6. Larissa M. Batrancea, 2023. "The Hard Worker, the Hard Earner, the Young and the Educated: Empirical Study on Economic Growth across 11 CEE Countries," Sustainability, MDPI, vol. 15(22), pages 1-14, November.
    7. Koeniger, Winfried & Leonardi, Marco, 2006. "Capital Deepening and Wage Differentials: Germany vs. US," IZA Discussion Papers 2065, Institute of Labor Economics (IZA).
    8. Musso, Alberto & Westermann, Thomas, 2005. "Assessing potential output growth in the euro area - a growth accounting perspective, January 2005," Occasional Paper Series 22, European Central Bank.
    9. Alka obadić & Sanja Porić, 2008. "The coordination between education and employment policies," EFZG Working Papers Series 0802, Faculty of Economics and Business, University of Zagreb.
    10. Lenarčič, Črt, 2019. "Inflation – Harrod-Balassa-Samuelson effect in a DSGE model setting," MPRA Paper 101199, University Library of Munich, Germany.

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    More about this item

    Keywords

    embodied technological change; equipment investment; euro area; investment price deflators; output growth;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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