Equipment, Structures, and the Limits of Investment-Specific Technological Change

Dongkeun Choi and Munseob Lee ()
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Dongkeun Choi: University of California, San Diego
Munseob Lee: University of California San Diego

No 18671, IZA Discussion Papers from IZA Network @ LISER

Abstract: The falling relative price of equipment, long viewed as the signature of investment-specific technological change (ISTC), has a countervailing force: rising structures prices. We establish four facts: high-income countries' structures prices rise as equipment prices fall; each investment rate falls with its own price; equipment prices predict income growth more strongly than structures prices; and U.S. structures price rises are broad-based. KLEMS data attribute roughly half the post-1996 rise in construction prices, in the U.S. and abroad, to declining construction TFP. We build a two-capital endogenous growth model with structures in production and R&D. Calibrated to the U.S., structures impose a structural drag of 0.50 percentage points per year, partially offsetting a 1.32 percentage point equipment boost. A nested CES extension finds structures-unskilled substitutability alongside equipment-skilled complementarity. These margins shrink the drag by 20-30% and reveal a novel channel whose omission overstates the 1963-2019 U.S. skill premium rise by 30%.

Keywords: equipment; structures; investment-specific technological change; endogenous growth (search for similar items in EconPapers)
JEL-codes: E22 O30 O40 (search for similar items in EconPapers)
Date: 2026-05
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