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Putty-putty, two sector, vintage capital growth models

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  • Brett D. Berger

Abstract

Most growth models assume capital is homogeneous with regard to technology. This contradicts intuition and empirical evidence that the majority of technology is embodied in the capital stock. Berger (2001) showed that neoclassical vintage capital (embodied technology) and non-vintage capital (disembodied technology) models have different convergence rates, although identical steady state growth rates. Removing the neoclassical assumption that technological growth is exogenous, I examine two-sector, putty-putty, vintage capital models. Technological growth is tied to investment in the research sector. Savings rates and the allocation of labor differ between the vintage and non-vintage cases. It is shown for the first time that vintage and non-vintage versions of a model can have different steady state growth rates.

Suggested Citation

  • Brett D. Berger, 2001. "Putty-putty, two sector, vintage capital growth models," International Finance Discussion Papers 716, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:716
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    References listed on IDEAS

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    1. Eicher, Theo S. & Turnovsky, Stephen J., 2001. "Transitional dynamics in a two-sector non-scale growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 85-113, January.
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    4. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    5. Adams, James D, 1990. "Fundamental Stocks of Knowledge and Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 673-702, August.
    6. Eicher, Theo S & Turnovsky, Stephen J, 1999. "Convergence in a Two-Sector Nonscale Growth Model," Journal of Economic Growth, Springer, vol. 4(4), pages 413-428, December.
    7. R. M. Solow & J. Tobin & C. C. von Weizs├Ącker & M. Yaari, 1966. "Neoclassical Growth with Fixed Factor Proportions," Review of Economic Studies, Oxford University Press, vol. 33(2), pages 79-115.
    8. Edmond S. Phelps, 1962. "Substitution, Fixed Proportions, Growth and Distribution," Cowles Foundation Discussion Papers 133, Cowles Foundation for Research in Economics, Yale University.
    9. Ramanathan, R, 1973. "Adjustment Time in the Two-Sector Growth Model with Fixed Coefficients," Economic Journal, Royal Economic Society, vol. 83(332), pages 1236-1244, December.
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    Keywords

    Technology ; Productivity ; Capital investments;

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