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Capital Obsolescence, Growth Accounting and Total Factor Productivity

Patrick Musso ()

Revue de l'OFCE, 2006, vol. 97 bis, issue 5, 217-233

Abstract: The stability of capital lifespan over time is a key assumption of growth accounting studies. However, many empirical works refute this hypothesis and suggest that the average service-life of capital goods has shown a decrease in the advanced economies since the 1970s. I show in this paper that this acceleration in capital obsolescence could strongly impact on traditional measures of Total Factor Productivity. For instance, a moderate increase in the capital retirement rate since the early 1970s could explain almost all the productivity slowdown observed in the US economy in the period 1974-2000. JEL Classification: C80, E17, O47.

Keywords: capital obsolescence; total factor productivity; productivity slowdown; mismeasurement hypothesis (search for similar items in EconPapers)
JEL-codes: C80 E17 O47 (search for similar items in EconPapers)
Date: 2006
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