Idle Automation Capital and Convergence

Abstract

The possibility that automation capital is idle has been so far neglected in the literature. However, we show that the departure from the full utilization assumption has significant transitional as well as long-run consequences for growth. We show that capital utilization can bring down the convergence speed as well as the long run growth rate towards an empirically plausible number provided that the elasticities of depreciation with respect to physical and automation capital utilization are sufficiently heterogenous. If not, or if heterogenous utilization elasticities tend to infinity, the model fails to produce results that are line with empirical data. The point is that it is not the introduction of capital utilization per se but the relationship between the elasticities of utilization of automation and physical capital that is relevant to produce empirically plausi­ble speeds of convergence and growth rates.