Technological progress and investment: Microeconomic foundations and macroeconomic implications

This paper presents a non-technical overview of the recent investment literature with a special emphasis on the connection between technological progress and the investment decision. First of all, we acknowledge that some dramatic advances have been made in the 1990s in understanding and modelling non-convex capital adjustment schemes and irreversibility. Nonetheless, this new literature has not satisfactorily accounted for the investment-specific (or embodied) nature of technical progress. We argue that the recent technological trends have a heavy impact on the way the investment decision is taken and is to be taken. This is turn should imply the reconsideration of many empirical results, and a more careful modelling strategy taking into account the price variables and scrupulously choosing the most appropriate level of (dis)aggregation.