Obsolescence and modernization in the growth process

Boucekkine, Raouf;Del Rio, Fernando;Licandro-Goldaracena, Omar
(2002)

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Authors
  • Boucekkine, RaoufUCLouvain
    Author
  • Del Rio, Fernando
    Author
  • Licandro-Goldaracena, OmarEuropean University Institute and FEDEA
    Author
Abstract
In this paper, an endogenous growth model is built up incorporating Schumpeterian growth and embodied technological progress. Under embodiment, long run growth is affected by the following effects: (i) obsolescence costs add to the user cost of capital, reducing the research effort; and (ii) the modernization of capital through investment raises the incentives to undertake R&D activities. Applied to the understanding of the growth enhancing role of both capital and R&D subsidies, we conclude that the positive effect of modernization generally more than compensate the negative effect of obsolescence.
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Boucekkine, R., Del Rio, F., & Licandro-Goldaracena, O. (2002). Obsolescence and modernization in the growth process (ECON Discussion Papers 2002/43). https://hdl.handle.net/2078.5/33787