Technological Progress and Investment Microeconomic Foundations and Macroeconomic Implications

This paper presents a non-technical overview of the recent investment literature witha special emphasis on the connection between technological progress and theinvestment decision. First of all, we acknowledge that some dramatic advances havebeen made in the 1990s in understanding and modelling non-convex capitaladjustment schemes and irreversibility. Nonetheless, this new literature has notsatisfactorily accounted for the investment-specific (or embodied) nature of technicalprogress. We argue that the recent technological trends have a heavy impact on theway the investment decision is taken and is to be taken. This is turn should imply thereconsideration of many empirical results, and a more careful modelling strategytaking into account the price variables and scrupulously choosing the mostappropriate level of (dis)aggregation.