Capital maintenance as a key development tool

Boucekkine, R., Martinez, B. and Saglam, C. (2010) Capital maintenance as a key development tool. Scottish Journal of Political Economy, 57(5), pp. 547-567. (doi:10.1111/j.1467-9485.2010.00530.x)

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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.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Boucekkine, Prof Raouf
Authors: Boucekkine, R., Martinez, B., and Saglam, C.
Subjects:H Social Sciences > HB Economic Theory
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Scottish Journal of Political Economy
ISSN (Online):1467-9485
Published Online:01 September 2010

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