The inconsistency if the production function is a homogeneous degree ν CES function, solving the problem and the presentation of the Modern Universal Growth Theory; The foundation of economic growth theory

de la Fonteijne, Marcel R. (2024): The inconsistency if the production function is a homogeneous degree ν CES function, solving the problem and the presentation of the Modern Universal Growth Theory; The foundation of economic growth theory.

Abstract

The use of a homogeneous not degree 1 CES production function in a simple economic model under conditions of maximum profit leads to an inconsistency. This paper identifies the root of this problem and provides a solution. Building on this, we propose an improved formulation of the Modern Universal Growth Theory, without focusing on all the difference with Solow, Harrod, Hicks, Uzawa and others, eliminating the errors and limitations inherent in earlier models like those developed by Solow in the 1960s. We conclude that approximate 40 % of the existing theory on economic growth is now rendered invalid.

• Item Type: MPRA Paper
• Language: English
• Keywords: Technical Progress; Growth Model; Maximum Profit Condition; Production Functions; General Technological Progress; Capital-Labor mix; Elasticity of Substitution; Normalized CES Functions, inconsistency; homogeneous CES production function; Total Factor Productivity; DSGE Model; Solow Model; Hicks; Harrod
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity

References

Acemoglu, D., 2009, Introduction to modern economic growth, Princeton University Press

De la Fonteijne, Marcel R., 2018, Why the Concept of Hicks, Harrod, Solow Neutral and even Non-Neutral Augmented Technical Progress is flawed, MPRA, https://mpra.ub.uni-muenchen.de/107730/

De la Fonteijne, Marcel R., 2023, The Consequence of the Modern Universal Growth Theory (MUGT) with respect to homogeneous degree 1 CES functions, DLF Macro Economic Research, https://mpra.ub.uni-muenchen.de/118888/

Jones, C.I., 2013, Introduction to economic growth, WW Norton & Co