Why capital maintenance should be a key development tool ?

Raouf Boucekkine (), Blanca Martinez () and Çağrı Sağlam

No 2007044, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: We study optimal growth model à la Nelson and Phelps (1966) where labor resources can be allocated either to production, technology adoption or capital maintenance. We first characterize the balanced growth paths of a benchmark model without maintenance. Then we introduce the maintenance activity via the depreciation rate of capital. We characterize the optimal allocation of labor across the three activities. Through maintenance deepens the technological gap by diverting labor ressources from adoption, we find that it generally increases the long run output level. Moreover we find that long term output response to policy shocks is slightly higher in the presence of maintenance.

Keywords: Adoption; Maintenance; Technological gap; Output gap (search for similar items in EconPapers)
JEL-codes: E22 E32 O40 (search for similar items in EconPapers)
Pages: 29
Date: 2007-12-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2007044

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