Modern Universal Growth Theory (MUGT): A comprehensive upgrade to Solow

de la Fonteijne, Marcel R. (2025): Modern Universal Growth Theory (MUGT): A comprehensive upgrade to Solow.

Abstract

For several decades, it has been recognized that the implementation of capital and labor augmented technical progress, as is done to date, leads to a theoretical paradox: either the CES production function has to be Cobb-Douglas or there exists labor augmented technical progress only. This so-called “Cobb-Douglas or labor augmented technical progress only paradox” continues to appear in economic models despite its inconsistency. In this paper, we reject the conventional approach, i.e., all kind of neutral and non-neutral capital and labor augmented technical progress and propose a revised implementation of technical progress that resolves the paradox. Economic growth is modeled as partly exogenous, driven by technical change, and partly endogenous, driven by capital accumulation. We provide formulas to translate total factor productivity (TFP) into economic growth to show the connection, thereby clarifying the link between TFP and output dynamics. This approach offers a new perspective on the Solow model and opens alternative paths for investigating endogenous growth mechanisms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Capital and Labor Augmented Technical Progress; Growth Model; Maximum Profit Condition; Production Function; General Technological Progress; Capital-Labor-mix; Elasticity of Substitution; DSGE; Total Factor Productivity; 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

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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/

De la Fonteijne, Marcel R., 2024, The inconsistency if the production function is a homogeneous degree � CES function, solving the problem and the presentation of the Modern Universal Growth Theory, DLF Macro Economic Research, https://mpra.ub.uni-muenchen.de/121867/

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