A NOTE ON PHYSICAL DEPRECIATION AND THE CAPITAL ACCUMULATION PROCESS

This paper examines the effect of different depreciation patterns on an economy's capital accumulation process. We model the transition path and the new steady-state growth rate following a change in either the economy's saving rate or its capital-output ratio. We show that the growth path of the capital stock can be very jagged, with pronounced declines in the growth rates of the capital stock. While a new steady state is eventually reached, an economy may go through periods of very uneven growth. Our simulation results have interesting implications for both developing and developed economies that have experienced a change in their saving rate. © 1990.