The vintage effect in TFP-growth

An analysis of the age structure of capital

Maury Gittleman, Thijs ten Raa, Edward Wolff

    Research output: Contribution to journalArticle

    Abstract

    The age structure of capital plays an important role in the measurement of productivity. It has been argued that the slowdown in the 1970s can be ascribed to the aging of the stock of capital. In this paper, we incorporate the age structure in productivity measurement. One proposition proves that Nelson's [Nelson, R.R., 1964. Aggregate production functions and medium-range growth projections. American Economic Review 54 (September), 575-605] formula is only an approximation. Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital. Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows. The analysis rests on a rigorous accounting for vintages. We translate the Bureau of Economic Analysis' age of capital data into a measure of rates of obsolescence. Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data. The results indicate that the use of capital stock in efficiency units does cause some smoothing of total factor productivity growth over time. In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintage-adjusted TFP-growth is significantly lower than unadjusted TFP-growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.

    Original languageEnglish (US)
    Pages (from-to)306-328
    Number of pages23
    JournalStructural Change and Economic Dynamics
    Volume17
    Issue number3
    DOIs
    StatePublished - Sep 2006

    Fingerprint

    Age structure
    TFP growth
    Obsolescence
    Productivity growth
    Productivity slowdown
    Economics
    Capital stock
    Approximation
    Productivity measurement
    Inclusion
    Depreciation
    Capital growth
    Productivity
    Aggregate production function
    Capital ratios
    Economic analysis
    Total factor productivity growth
    Smoothing

    Keywords

    • Capital vintage
    • Investment
    • Productivity

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    The vintage effect in TFP-growth : An analysis of the age structure of capital. / Gittleman, Maury; ten Raa, Thijs; Wolff, Edward.

    In: Structural Change and Economic Dynamics, Vol. 17, No. 3, 09.2006, p. 306-328.

    Research output: Contribution to journalArticle

    Gittleman, Maury ; ten Raa, Thijs ; Wolff, Edward. / The vintage effect in TFP-growth : An analysis of the age structure of capital. In: Structural Change and Economic Dynamics. 2006 ; Vol. 17, No. 3. pp. 306-328.
    @article{5c201f547f4c437c8e0496fcc2e45625,
    title = "The vintage effect in TFP-growth: An analysis of the age structure of capital",
    abstract = "The age structure of capital plays an important role in the measurement of productivity. It has been argued that the slowdown in the 1970s can be ascribed to the aging of the stock of capital. In this paper, we incorporate the age structure in productivity measurement. One proposition proves that Nelson's [Nelson, R.R., 1964. Aggregate production functions and medium-range growth projections. American Economic Review 54 (September), 575-605] formula is only an approximation. Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital. Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows. The analysis rests on a rigorous accounting for vintages. We translate the Bureau of Economic Analysis' age of capital data into a measure of rates of obsolescence. Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data. The results indicate that the use of capital stock in efficiency units does cause some smoothing of total factor productivity growth over time. In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintage-adjusted TFP-growth is significantly lower than unadjusted TFP-growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.",
    keywords = "Capital vintage, Investment, Productivity",
    author = "Maury Gittleman and {ten Raa}, Thijs and Edward Wolff",
    year = "2006",
    month = "9",
    doi = "10.1016/j.strueco.2005.05.002",
    language = "English (US)",
    volume = "17",
    pages = "306--328",
    journal = "Structural Change and Economic Dynamics",
    issn = "0954-349X",
    publisher = "Elsevier",
    number = "3",

    }

    TY - JOUR

    T1 - The vintage effect in TFP-growth

    T2 - An analysis of the age structure of capital

    AU - Gittleman, Maury

    AU - ten Raa, Thijs

    AU - Wolff, Edward

    PY - 2006/9

    Y1 - 2006/9

    N2 - The age structure of capital plays an important role in the measurement of productivity. It has been argued that the slowdown in the 1970s can be ascribed to the aging of the stock of capital. In this paper, we incorporate the age structure in productivity measurement. One proposition proves that Nelson's [Nelson, R.R., 1964. Aggregate production functions and medium-range growth projections. American Economic Review 54 (September), 575-605] formula is only an approximation. Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital. Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows. The analysis rests on a rigorous accounting for vintages. We translate the Bureau of Economic Analysis' age of capital data into a measure of rates of obsolescence. Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data. The results indicate that the use of capital stock in efficiency units does cause some smoothing of total factor productivity growth over time. In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintage-adjusted TFP-growth is significantly lower than unadjusted TFP-growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.

    AB - The age structure of capital plays an important role in the measurement of productivity. It has been argued that the slowdown in the 1970s can be ascribed to the aging of the stock of capital. In this paper, we incorporate the age structure in productivity measurement. One proposition proves that Nelson's [Nelson, R.R., 1964. Aggregate production functions and medium-range growth projections. American Economic Review 54 (September), 575-605] formula is only an approximation. Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital. Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows. The analysis rests on a rigorous accounting for vintages. We translate the Bureau of Economic Analysis' age of capital data into a measure of rates of obsolescence. Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data. The results indicate that the use of capital stock in efficiency units does cause some smoothing of total factor productivity growth over time. In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintage-adjusted TFP-growth is significantly lower than unadjusted TFP-growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.

    KW - Capital vintage

    KW - Investment

    KW - Productivity

    UR - http://www.scopus.com/inward/record.url?scp=33746134151&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=33746134151&partnerID=8YFLogxK

    U2 - 10.1016/j.strueco.2005.05.002

    DO - 10.1016/j.strueco.2005.05.002

    M3 - Article

    VL - 17

    SP - 306

    EP - 328

    JO - Structural Change and Economic Dynamics

    JF - Structural Change and Economic Dynamics

    SN - 0954-349X

    IS - 3

    ER -