Munich Personal RePEc Archive

Growth with Endogenous Direction of Technical Change

LI, Defu and Bental, Benjamin (2015): Growth with Endogenous Direction of Technical Change.

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By extending the range of admissible factor accumulation and innovation investment elasticities, this paper expands the Acemoglu (2003) model and obtains several results. First, it identifies conditions for the existence of a steady-state equilibrium and shows that Uzawa’s theorem is obtained as a special case of these conditions. Second, it demonstrates that along a steady-state equilibrium path, technological progress can include both labor-augmenting and capital-augmenting elements. Third, it shows that the direction of technological progress is determined by the relative size of price elasticities of material factors, and is biased towards the factor with the relatively smaller price elasticity. Finally, the paper finds that technical change has two effects on factor income shares. On one hand, factor shares change when the direction of technical progress changes. On the other hand, when the direction of technical change remains unchanged, in general the speed of technical progress also affects factor shares, unless technical progress is Hicks neutral.

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