A Schumpeterian Vintage Capital Model: An Attempt at Synthesis

Raouf Boucekkine (), Fernando del Río and Omar Licandro ()

No 2000023, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In this paper, we build up a general equilibrium model explicitly incorporating Schumpeterian growth à la Aghion and Howitt (1992) and a vintage capital structure in line with Solow (1960). In this set-up, we show that the investment rate is a fundamental determinant of the profitability of R&D. We characterize the balanced growth paths. We show that, although the model can generate multiple equilibria due to the presence of strategic complementarities, the unique stable equilibrium is indeed dominated by strategic substituabilities. At this equilibrium, the higher is the investment rate, the more resources are devoted to R&D, the faster the economy grows, the lower is the average age of capital and the higher is the rate of decline of the relative price of capital. Subsidizing both capital and research stimulates growth. The embodiment of technological progress does not necessarily affect negatively the efficiency of capital subsidy through the typical obsolescence costs because of the modernization effect of investment in such a context.

Keywords: vintage capital; R&D; creative destruction; embodiment; obsolescence; modernization of capital (search for similar items in EconPapers)
JEL-codes: C63 E22 E32 O40 (search for similar items in EconPapers)
Pages: 27
Date: 2000-09-01
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2000023

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