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The steady-state growth conditions of neoclassical growth model and Uzawa theorem revisited

Li, Defu and Huang, Jiuli (2016): The steady-state growth conditions of neoclassical growth model and Uzawa theorem revisited.

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Abstract

Based on a neoclassical growth model including adjustment costs of investment, this paper proves that the essential condition for neoclassical model to have steady-state growth path is that the sum of change rate of the marginal efficiency of capital accumulation (MECA) and the rate of capital-augmenting technical change (CATC) be zero. We further confirm that Uzawa(1961)’s steady-state growth theorem that says the steady-state technical change of neoclassical growth model should exclusively be Harrod neutral, holds only if the marginal efficiency of capital accumulation is constant, which in turn implies that the capital supply should be infinitely elastic. Uzawa’s theorem has been misleading the development of growth theorem by not explicitly specifying this prerequisite, and thus should be revisited.

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