Accelerated capital obsolescence is depressing investment

One explanation for the low corporate investment rate in all OECD countries despite the high level of “Tobin’s q” (market valuation of capital) , high profitability and ever-lower real interest rates may be found in an acceleration in capital obsolescence. It would be a negative consequence of rapid technological progress: if it speeds up capital obsolescence, it increases the user cost of capital (which has to be replaced sooner) and therefore discourages investment. Potential growth would therefore not benefit from technological progress due to the negative effect of the acceleration in obsolescence on capital accumulation. Indeed, actual developments seem to show that the rate of capital obsolescence, which has risen as a trend, has a negative effect on the investment rate and therefore on potential growth .