Technological innovations, remanufacturing, and green accounting

An extensive literature on vintage capital and economic growth tries to capture the effects of disruptive technological innovation on growth dynamics by addressing Solow’s observation that innovations must be embodied in new vintages of durable equipment before they can be effective. The idea is that technological change affects output only if it happens due to net capital formation or replacement of old equipment by the latest models. This article uses the vintage capital theoretical framework to investigate a different question: how technological innovations and changes in the intensity of remanufacturing and refurbishing may affect national and green accounting in different ways. Vintage growth models offer an ideal framework to capture the notion of technological innovation and obsolescence, and allow for a rigorous treatment of the problem. Disruptive technological innovations embodied in new capital vintages lead to increases in productivity, but also to waste of resources when the capital of previous vintages is discarded. Remanufacturing and refurbishing may reduce the negative impacts of innovations by allowing embodiment to happen with less resource waste. Remanufacturing and refurbishing, on the other hand, may increase capital replacement costs, so the tradeoff between resource savings and replacement costs needs to be evaluated. Legacy systems of national accounting do not consider productivity losses and wealth destruction caused by resource waste and other types of environmental damage due to obsolescence, biasing upward productivity and growth gains due to disruptive technological innovations. Systems of green accounting, when correctly defined, may offer a more precise picture of those gains. Rigorous modeling of the phenomenon is important, not only because it allows for better understanding of the effects of remanufacturing and refurbishing on productivity and economic growth, but also because it may provide better conceptual guidelines for the development of systems of green accounting.