Abstract: This paper augments the traditional growth accounting framework by including a
common specification of investment adjustment costs and uses the new framework
to examine the past and likely future growth in nonfarm business output in the
United States. The inclusion of adjustment costs can have large effects on the
growth-accounting exercise when a new investment good is introduced--such as
computers in the last thirty years. The new framework indicates that the
contribution of computers to economic growth has been held down by the large
adjustment costs required to incorporate a new investment good into the
economy's capital stock. Alternative calibrations of the model suggest that
these adjustment costs have lowered measured growth in multifactor productivity
since 1974 by about 1/2 percentage point--a nontrivial percentage of the
productivity slowdown. Combining the adjustments to multifactor productivity
and the impact of computers implied by the model with adjustment costs boosts
long-run growth in output per hour 3/4 percentage point above the 1974-1991 average.
Keywords: Computers, productivity
Full paper (85 KB PDF)
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Last update: September 8, 1999
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