Abstract:
The capital stock in Germany and other advanced economies has been aging persistently since 1970s, raising concerns about its implications for productivity, economic growth, and resilience. This study investigates the relationship between capital stock modernity and productivity dynamics using a panel dataset covering 24 European countries between 1997 and 2020. We employ a panel local projections model with split-panel jackknife corrections to address the Nickell-type bias inherent in dynamic panel models with fixed effects. Our analysis controls for human capital, research and development, trade openness, institutional quality, and financial development. The results show that improvements in capital stock modernity exert a positive and statistically significant effect on both total factor productivity (TFP) and labor productivity, although the timing of these effects varies across measures. Specifically, labor productivity growth responds immediately to capital modernization, whereas potential TFP growth increases only from the second year following the shock.
