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Technology Upgrading with Learning Cost

  • Ahn, Sanghoon
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    Adoption of new technology requires diversion of resources from direct production activities to learning/adjusting activities, which could reduce productivity temporarily. Focusing on the existence of such "learning cost", we derive a simple model on the optimal timing for technology upgrading. This model suggests that a firm perceived to have better learning ability will show more frequent technology upgrading and higher market value even with possibly lower current profitability. The model predictions are supported by regression results from a panel data set of more than 1,000 companies in the US during the late 1980s and the early 1990s. Simulations based on an extended model reproduce the negative correlation between investment growth and TFP growth.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13909/1/wp2003-21a.pdf
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    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2003-21.

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    Length: 45 p.
    Date of creation: Sep 2003
    Date of revision:
    Handle: RePEc:hit:hitcei:2003-21
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    1. Helpman, Elhanan & Rangel, Antonio, 1999. " Adjusting to a New Technology: Experience and Training," Journal of Economic Growth, Springer, vol. 4(4), pages 359-83, December.
    2. Thomas F. Cooley & Jeremy Greenwood & Mehmet Yorukoglu, 1994. "The replacement problem," Discussion Paper / Institute for Empirical Macroeconomics 95, Federal Reserve Bank of Minneapolis.
    3. David Andolfatto & Glenn M. MacDonald, 1998. "Technology Diffusion and Aggregate Dynamics," Cahiers de recherche CREFE / CREFE Working Papers 58, CREFE, Université du Québec à Montréal.
    4. Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc.
    5. Basu, Susanto & Fernald, John G. & Shapiro, Matthew D., 2001. "Productivity growth in the 1990s: technology, utilization, or adjustment?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 117-165, December.
    6. Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May.
    7. Mehmet Yorukoglu, 1998. "The Information Technology Productivity Paradox," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 551-592, April.
    8. repec:fth:simfra:95-08 is not listed on IDEAS
    9. Jeffrey R. Campbell, 1997. "Computational Appendix to Entry, Exit, Embodied Technology, and Business Cycles," Technical Appendices campbell98, Review of Economic Dynamics.
    10. Andolfatto, D. & MacDonald, G.M., 1995. "Technological Innovation, Diffusion, and Business Cycle Dynamics," Working Papers 9503, University of Waterloo, Department of Economics.
    11. Brezis, Elise S & Krugman, Paul R & Tsiddon, Daniel, 1993. "Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership," American Economic Review, American Economic Association, vol. 83(5), pages 1211-19, December.
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