Premium
CAPITAL MAINTENANCE AS A KEY DEVELOPMENT TOOL
Author(s) -
Boucekkine Raouf,
Martinez Blanca,
Saglam Cagri
Publication year - 2010
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2010.00530.x
Subject(s) - depreciation (economics) , economics , benchmark (surveying) , capital (architecture) , production (economics) , key (lock) , growth model , microeconomics , industrial organization , computer science , capital formation , financial capital , profit (economics) , computer security , history , geography , geodesy , archaeology
We construct optimal growth models 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 maintenance activity via the depreciation rate of capital. We characterize the optimal allocation of labor across the three activities. Although maintenance deepens the technological gap by diverting labor resources from adoption, we show that it generally increases the long run output level. Moreover, we find that equilibrium maintenance and adoption efforts respond in opposite directions to policy or technology shocks. Finally, we find that the long‐term output response to policy shocks is slightly higher in the presence of maintenance.