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What determines the Direction of Technological Progress(2023.11.16)?

Li, Defu and Bental, Benjamin (2023): What determines the Direction of Technological Progress(2023.11.16)?

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Technological progress relates not only to its rate but also to its direction and bias. The rate has been analyzed by the endogenous technical change models and the bias has been analyzed by the directed technical change model, but the determinants of the direction has not been uncovered yet. This paper tries to provide a framework where the equilibrium direction of technical change can be studied to reveal its determinants in steady state. The crucial introductions of the framework are the generalized factor accumulation processes and a generalized production function. The generalizations admit unrestricted factor supply elasticities and marginal transformation rates of production factors into effective factors. These turn out to be the key determinants of the steady-state direction of technological progress, whereby that direction tends towards the factor with the relatively smaller supply elasticity or marginal transformation rate. The neoclassical growth model as a special case cannot admit capital-augmenting technical change in steady state because of the assumptions of capital with infinite supply elasticity and constant marginal transformation rate. Similarly, labor-augmenting technical change cannot be part of a Malthusian steady state owing to labor with infinite supply elasticity. These results provide new insights for understanding the puzzle of Uzawa’s (1961) steady-state theorem and indicates that the size and change of factor supply elasticities may be crucial elements in explaining the Malthusian trap before the industrial revolution, the Kaldor (1961) facts afterwards and the industrial revolution itself.

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