Productivity growth in Australian manufacturing: a vintage capital model

Bloch, Harry and Madden, Gary G (1995): Productivity growth in Australian manufacturing: a vintage capital model. Published in: International Journal of Manpower , Vol. 16, No. 1 (1995): pp. 22-31.

Abstract

Recent contributions by Hulten (1992) and Gort et al. (1993) indicate a renewed interest in using capital-embodied technology models to understand the sources of productivity growth. An advantage of models with capital-embodied technology is that current productivity is related to the prior time path of investment. This provides a potential dynamic link between past market conditions and current productivity performance. In particular, models with capital-embodied technology provide a possible explanation for the positive relationship between productivity growth and the rate of investment, particularly investment in capital equipment, found in cross-country studies (see, for example, Wolff (1991) and De Long and Summers (1992)). Regressions in the form of the relationships derived from the analysis are estimated using data for a cross-section of Australian manufacturing industries. Variables suggested by the analysis of the vintage capital model contribute significantly to the explanation of differences in average labour productivity growth across the sample industries. However, specific restrictions on coefficient values derived from the analysis are rejected by the regression results. The implications of this mixed support for the application of the vintage capital model to explaining labour productivity growth in Australian manufacturing are discussed

• Item Type: MPRA Paper
• Language: English
• Keywords: Australian manufacturing; productivity growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Bloch, H. and Madden, G. (1994), “Tariffs and productivity when technology is embodied in capital equipment”, Discussion Paper 94-06, Institute for Research into International Competitiveness at Curtin University, Perth.

Bureau of Industry Economics (1985), Productivity Growth in Australian Manufacturing Industry: 1954-55 to 1981-82, Australian Government Printing Office, Canberra.

Bureau of Industry Economics (1986), Manufacturing Industry Productivity Growth: Causes, Effects and Implications, Australian Government Printing Office, Canberra.

De Long, B.J. and Summers, L.H. (1992), “Equipment investment and economic growth: how strong is the nexus?”, Brookings Papers on Economic Activity, Vol. 2, pp. 157-99.

Gort, M., Bank, B.H. and Wall, R.A. (1993), “Decomposing technical change”, Southern Economic Journal, Vol. 50, pp. 220-4.

Hulten, C.R. (1992), “Growth accounting when technical change is embodied in capital”, American Economic Review, Vol. 82, pp. 964-80.

Intriligator, M.D. (1992), “Productivity and the embodiment of technical progress”, Scandinavian Journal of Economics, Vol. 94, pp. s75-s87.

Johansen, L. (1959), “Substitution versus fixed production coefficients in the theory of economic growth: a synthesis”, Econometrica, Vol. 27, pp. 157-76.

McHugh, R. and Lane, J. (1987), “The age of capital, the age of utilized capital, and tests of the embodiment hypothesis”, Review of Economics and Statistics, Vol. 69, pp. 362-7.

Salter, W.E.G. (1966), Productivity and Technical Change, 2nd ed., Cambridge University Press, Cambridge.

Solow, R.M. (1960), “Investment and technical progress”, in Arrow, K., Karlin, S. and Suppes, P. (Eds), Mathematical Methods in the Social Sciences, 1959, Stanford University Press, Palo Alto, CA, pp. 89-104.

Wolff, E.N. (1991), “Capital formation and productivity convergence over the long term”, American Economic Review, Vol. 81, pp. 565-79.