The Vintage Effect in TFP Growth: An Analysis of the Age Structure of Capital
The age structure of capital plays an important role in the measurement of productivity. It has been argued that the slowdown in the 1970's can be ascribed to the aging of the stock of capital. In this paper we incorporate the age structure in productivity measurement. A proposition proves that Nelson's (1964) formula is wrong. Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital. Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows. The analysis rests on a rigorous accounting for vintages. We translate the Bureau of Economic Analysis' age of capital data into a measure of rates of obsolescence. Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data. The results indicate that the use of capital stock in efficiency units does cause some smoothing of Total Factor Productivity growth over time. In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintage-adjusted TFP growth is significantly lower than unadjusted TFP growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.
|Date of creation:||Jun 2003|
|Date of revision:|
|Publication status:||published as Gittleman, Maury & ten Raa, Thijs & Wolff, Edward N., 2006. "The vintage effect in TFP-growth: An analysis of the age structure of capital," Structural Change and Economic Dynamics, Elsevier, vol. 17(3), pages 306-328, September.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Solow, Robert M, 1988.
"Growth Theory and After,"
American Economic Review,
American Economic Association, vol. 78(3), pages 307-17, June.
- Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
- Ariel Pakes & Mark Schankerman, 1980.
"An Exploration into the Determinants of Research Intensity,"
NBER Working Papers
0438, National Bureau of Economic Research, Inc.
- Ariel Pakes & Mark Schankerman, 1984. "An Exploration into the Determinants of Research Intensity," NBER Chapters, in: R&D, Patents, and Productivity, pages 209-232 National Bureau of Economic Research, Inc.
- Pakes, Ariel & Schankerman, Mark, 1980. "An Exploration Into the Determinants of Research Intensity," Working Papers 80-02, C.V. Starr Center for Applied Economics, New York University.
- Peter K. Clark, 1979. "Issues in the Analysis of Capital Formation and Productivity Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 423-446.
- Robert J. Gordon, 1979.
"The "End-of-Expansion" Phenomenon in Short-Run Productivity Behavior,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 10(2), pages 447-462.
- Robert J. Gordon, 1980. "The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior," NBER Working Papers 0427, National Bureau of Economic Research, Inc.
- Wolff, Edward N, 1991. "Capital Formation and Productivity Convergence over the Long Term," American Economic Review, American Economic Association, vol. 81(3), pages 565-79, June.
- Jorgenson, Dale W., 1966. "The Embodiment Hypothesis," Scholarly Articles 3403063, Harvard University Department of Economics.
- Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
- John A. Tatom, 1979. "The productivity problem," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-16.
- Dale W. Jorgenson, 1966. "The Embodiment Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 74, pages 1.
- Bosworth, D L, 1978. "The Rate of Obsolescence of Technical Knowledge-A Note," Journal of Industrial Economics, Wiley Blackwell, vol. 26(3), pages 273-79, March.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9768. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.