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Is Harrod-neutrality Needed for Balanced Growth? Uzawa's Theorem Revisited

Li, Defu and Huang, Jiuli and Zhou, Ying (2014): Is Harrod-neutrality Needed for Balanced Growth? Uzawa's Theorem Revisited.

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Abstract

Taking into account the adjustment costs of investment, this paper proves that it is not the neoclassical growth model itself but the specific form of capital accumulation function that requires technical change to exclusively be Harrod neutral in steady state. Uzawa’s(1961)steady-state growth theorem holds only when the marginal efficiency of capital accumulation is constant, which implies that the capital supply is infinitely elastic. Therefore, it is unnecessary to make strong assumptions about the shape of the production function and the direction of technical change for neoclassical growth model to exhibit steady-state growth.

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