Capital Maintenance Versus Technology Adoption Under Embodied Technical Progress

CORE Discussion Paper No. 2006/58

38 Pages Posted: 28 Aug 2006

See all articles by Raouf Boucekkine

Raouf Boucekkine

Universite Catholique de Louvain

Blanca Martinez

Universite Catholique de Louvain

Cagri Saglam

Bilkent University

Date Written: June 2006

Abstract

We study an optimal growth model with one-hoss-shay vintage capital, where labor resources can be allocated freely either to production, technology adoption or capital maintenance. Technological progress is partly embodied. Adoption labor increases the level of embodied technical progress. First, we are able to disentangle the amplification-propagation role of maintenance in business fluctuations: in the short run, the response of the model to transitory shocks on total factor productivity in the final good sector are definitely much sharper compared to the counterpart model without maintenance but with the same average depreciation rate. Moreover, the one-hoss shay technology is shown to reinforce this amplification-propagation mechanism. We also find that accelerations in embodied technical progress should be responded by a gradual adoption effort, and capital maintenance should be the preferred instrument in the short run.

Keywords: Technology adoption, maintenance, vintage capital, dynamics

JEL Classification: E22, E32, O40

Suggested Citation

Boucekkine, Raouf and Martinez, Blanca and Saglam, Cagri, Capital Maintenance Versus Technology Adoption Under Embodied Technical Progress (June 2006). CORE Discussion Paper No. 2006/58, Available at SSRN: https://ssrn.com/abstract=926524 or http://dx.doi.org/10.2139/ssrn.926524

Raouf Boucekkine (Contact Author)

Universite Catholique de Louvain ( email )

3, Place Montesquieu
Institut de Recherches Economiques et Sociales (IRES)
1348 Louvain-la-Neuve
Belgium
+32 10 47 38 48 (Phone)
+32 10 47 39 45 (Fax)

Blanca Martinez

Universite Catholique de Louvain

3, Place Montesquieu
Institut de Recherches Economiques et Sociales (IRES)
1348 Louvain-la-Neuve
Belgium

Cagri Saglam

Bilkent University ( email )

Bilkent, Ankara 06533
Turkey

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