21 Pages Posted: 7 Sep 2010
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.
Suggested Citation: Suggested Citation
Boucekkine, Raouf and Martinez, Blanca and Saglam, Cagri, Capital Maintenance as a Key Development Tool. Scottish Journal of Political Economy, Vol. 57, Issue 5, pp. 547-567, November 2010. Available at SSRN: https://ssrn.com/abstract=1670378 or http://dx.doi.org/10.1111/j.1467-9485.2010.00530.x
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