Vintage Modelling for Dummies using the Putty-Practically-Clay Approach

Vintage models have been around for a long time now. Since their conception in the late Fifties and early Sixties they have been adopted by economists interested in the connection between technical change and economic growth, because they highlight a number of important insights regarding the complementarity between productivity growth and investment. First of all, productivity growth is positively influenced by gross investment. In the hitherto standard aggregate production function approach towards explaining labour productivity growth, the latter was as much the result of the growth in capital per head (and therefore linked to net investment per head rather than gross investment), as of (labour saving) technical change itself. And even though Abramowitz in his reaction to Solow’s paper (Solow 1957) on the contribution of technical change to productivity growth already noted that the overriding importance of technical change was also a clear measure of our ignorance, it was only with the advent of new growth theory in the late Eighties and early Nineties, that economists took up the challenge implicit in Abramowitz’s remark. In the mean time, i.e. in the late Sixties and Seventies, economists all over the world had a look at how technical change got diffused in the economy rather than having a closer look at the sources of technical change....