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EU KLEMS Project

EU KLEMS Working Paper Series

No. 24

Erumban, Abdul Azeez (2008) Innovation, Obsolescence and Retirement: An Exploration Based on Data for Dutch Manufacturing Firms, (June 2008)


The recent theories of investment and growth have shown that when there are distinct capital vintages with embodied technologies, capital retirement decisions become endogenous. This raises important problems with existing measures of output, depreciation and productivity and requires a deeper understanding of the retirement process. However, the determinants of retirement are not well understood because of the lack of firm-level data. This paper uses a unique data base on retirements by manufacturing firms in the Netherlands, coupled with economic and innovation variables from other surveys by Statistics Netherlands, to examine the impact of innovation on capital retirement. Our results provide supporting evidence on the relationship between innovation and discard rates. We obtain significant positive effects of process-innovation in a firm on machinery discards and product innovation in a firm on computer discards. Average age of the asset is the most significant factor in driving discard decisions, which may be considered as an indicator of embodied technological change and obsolescence alongside efficiency loss.

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This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

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Last changed on: July 7 2008