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GTAP Resource #4208

"Capital Vintages and Technology Diffusion in Global Models"
by McDonald, Scott

The treatment of technological change and its interaction with capital accumulation in dynamic CGE models is arguably crude. It is common in (recursive) dynamic models to assume a high degree of separability between capital accumulation and technology change and to assume, implicitly, that any technological change that effects the productivity of capital impacts upon all capital, i.e., existing and new capital. This approach have obvious attractions; it avoids the modeler having to track capital in both ‘natural’ and efficiency units and simplifies treatment of technological change by facilitating the imposition of Hicks neutral technological change at some, usually unspecified, level of the production system. However both the technological change and economic growth literatures suggest that this common approach is poorly grounded in economic theory. In particular Hicks neutral technological change is not consistent with steady state growth while it is common for new technology to be associated with new capital investments, Solow neutral technological change.

This study uses a recursive dynamic variant of the GLOBE model to analyse the implications of departing from the assumption of ‘pure’ Hicks neutral technological change in two ways. First, it is assumed that new technologies are, to a greater or lesser extent, embedded in new capital stocks – Solow neutral technological change. This requires that the model tracks the vintages of capital stocks so that a separation can be maintained between capital stocks in ‘natural’ and ‘efficiency units. The approached developed in this application is to assume that once capital is invested in an activity it cannot relocated to another activity; the model therefore only allows capital stocks by activity to reduce through depreciation and/or early retirement and to increase through only through investment. And second, that the ‘calibrated’ rate of technological change, aka “the measure of our ignorance”, derived when d...

Resource Details (Export Citation) GTAP Keywords
Category: 2013 Conference Paper
Status: Published
By/In: Presented at the 16th Annual Conference on Global Economic Analysis, Shanghai, China
Date: 2013
Created: McDonald, S. (4/15/2013)
Updated: McDonald, S. (4/15/2013)
Visits: 1,954
- Calibration and parameter estimation
- Dynamic modeling
- Technological change

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