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Computers and growth with costs of adjustment: will the future look like the past?

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Michael T. Kiley

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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.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-36.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-36

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Keywords: Computers ; Productivity;

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  1. Kevin A. Hassett & R. Glenn Hubbard, 1998. "Tax Policy and Investment," NBER Working Papers 5683, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Jeremy Greenwood & Boyan Jovanovic, 1998. "Accounting for Growth," NBER Working Papers 6647, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Jeremy Greenwood & Boyan Jovanovic, 2000. "Accounting for Growth," RCER Working Papers 475, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
    • Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February. [Downloadable!] (restricted)
  4. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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  1. Karl Aiginger & Michael Landesmann, 2002. "Competitive Economic Performance: The European View," WIFO Working Papers 179, WIFO. [Downloadable!]
  2. Michael R. Pakko, 2001. "What happens when the technology growth trend changes?: transition dynamics, capital growth and the "new economy"," Working Papers 2001-020, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  3. John Simon & Sharon Wardrop, 2002. "Australian Use of Information Technology and its Contribution to Growth," RBA Research Discussion Papers rdp2002-02, Reserve Bank of Australia. [Downloadable!]
  4. Susanto Basu & John G. Fernald & Matthew D. Shapiro, 2001. "Productivity growth in the 1990s: technology, utilization, or adjustment," Working Paper Series WP-01-04, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  5. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March. [Downloadable!] (restricted)
  6. James Bessen, 2002. "Technology Adoption Costs and Productivity Growth: The Transition to Information Technology," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 443-469, April. [Downloadable!] (restricted)
  7. Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," Working Papers 04-1, Bank of Canada. [Downloadable!]
  8. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  9. Charlotta Groth, . "Estimating UK capital adjustment costs," Bank of England working papers 258, Bank of England. [Downloadable!]
  10. Nicholas Oulton, . "ICT and productivity growth in the United Kingdom," Bank of England working papers 140, Bank of England. [Downloadable!]
    Other versions:
  11. Kevin J. Stiroh, 2001. "Is IT Driving the U.S. Productivity Revival?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 2, pages 31-36, Spring. [Downloadable!]
  12. Michael R. Pakko, 2005. "Changing technology trends, transition dynamics and growth accounting," Working Papers 2000-014, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  13. Cigan, Heidi, 2002. "The Internet's Contribution to Progress and Growth in Germany: The Economic Impact of the Internet and the Price Structure of Access," Report Series 26072, Hamburg Institute of International Economics. [Downloadable!]
  14. Ronald M. Albers, 2002. "New technologies and productivity growth in the Euro area," Working Paper Series 122, European Central Bank. [Downloadable!]
  15. Danny Leung, 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data," International Productivity Monitor, Centre for the Study of Living Standards, vol. 9, pages 52-61, Fall. [Downloadable!]
  16. Andrew Sharpe, 2006. "Lessons for Canada from International Productivity Experience," CSLS Research Reports 2006-02, Centre for the Study of Living Standards. [Downloadable!]
  17. Hannes Leo, 2001. "ICT Investment and Growth of Output and Productivity," WIFO Working Papers 162, WIFO. [Downloadable!]
    Other versions:
  18. Argandoña, Antonio, 2001. "Nueva economía y el crecimiento económico, La," IESE Research Papers D/437, IESE Business School. [Downloadable!]
  19. Alessandra Colecchia & Paul Schreyer, 2002. "ICT Investment and Economic Growth in the 1990s: Is the United States a Unique Case? A Comparative Study of Nine OECD Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 408-442, April. [Downloadable!] (restricted)
  20. Michael T. Kiley, 2000. "Stock prices and fundamentals in a production economy," Finance and Economics Discussion Series 2000-05, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  21. Pascal Petit, 2002. "The Roots of the New Economy: An Institutional Perspective," International Productivity Monitor, Centre for the Study of Living Standards, vol. 4, pages 39-54, Spring. [Downloadable!]
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