TY  - JOUR
AU  - Hulten,Charles R.
TI  - Quality Change in Capital Goods and Its Impact on Economic Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5569
PY  - 1996
Y2  - May 1996
UR  - http://www.nber.org/papers/w5569
L1  - http://www.nber.org/papers/w5569.pdf
N1  - Author contact info:
Charles R. Hulten
Department of Economics
University of Maryland
Room 3105, Tydings Hall
College Park, MD 20742
Tel: 301/405-3549
Fax: 301/405-3542
E-Mail: hulten@econ.umd.edu
AB  - This paper argues that productivity puzzles like the Solow Paradox arise, in part, from the omission of an important dimension of the debate: the resource cost of achieving a given rate of technical change.  A remedy is proposed in which a new parameter, defined as the cost elasticity of producing capital with respect to the rate of technical change, is introduced.  This parameter is shown to be latent in the Hall-Jorgenson user-cost of capital, as well as in the Solow residual.  It is also shown that an increase in the rate of embodied technical change may actually cause a decrease in the Solow residual, in the short run, if the parameter is greater than the ratio of the user cost to the corresponding asset price. Different values of the new parameter also correspond to different theories of technological innovation: the Solow-Swan and Cass-Koopmans assumption of costless technical change is consistent with a zero value of the cost elasticity parameter, while the model of endogenous growth with R&D externalities implies a larger value. Finally, the appropriate investment-good price deflator is shown to be a function of the cost-elasticity.  When the parameter equals zero, no quality adjustment should be undertaken, but values greater than zero lead to a partial adjustment for quality change, and a value of one leads to a full correction.
ER  -