A Version of the MSG-Model with Putty-Clay and Vintage Technology

Abstract

Publisher Summary This chapter discusses a version of the multi-sectoral growth model, or the so-called MSG-model with Putty-Clay and Vintage technology, wherein a multisectoral growth model is presented. In this model, capital is produced as a composite commodity, but its composition differs depending on where it is employed. Here, each sector is characterized by the available capacity embodied in old vintages of capital and each vintage is described by a production function with fixed factor proportions. Within the model, all investment levels are determined in such a way that an increase in production requires an increase in productive capacity, which in turn requires an increase in the production of investment goods. Basically, this is an input-output model where private consumption is determined by prices and disposable income, and where public consumption of goods is given exogenously. Output prices are determined within the system and are equal to the newly created capacity's unit cost of production. Each investment decision leads to a triplet that can be viewed as a specific plant or vintage. Thus, it can be assumed that labor requirement coefficients differ among the vintages of each sector, whereas input-output coefficients do not. For any sum of utilized capacity of the various vintages, a corresponding average labor requirement coefficient is determined for the sector in question.