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Capital Accumulation, Factor Prices and Endogenous Labor-Saving Technical Change

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Author Info
Irmen, Andreas (Institut für Volkswirtschaft und Statistik (IVS))

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Abstract

The process of capital accumulation understood as a rise in the capital-labor ratio steadily raises the scarcity of labor with respect to capital and leads to a rise in the cost of labor relative to the cost of capital. This movement in relative factor prices may act as an incentive for profit-maximizing firms to direct innovations towards labor saving technologies. We make this point in a model of endogenous technical change that relates the neoclassical growth paradigm to the concept of induced innovation. These ingredients suggest an economic development of economies characterized by an endogenous ``run through stages.'' In early stages, the driving force of economic growth is capital accumulation because the return to physical capital is high and labor is cheap. In mature stages, however, labor is expensive so that firms invest in new technologies that economize on labor. Thus, economies may evolve from a regime of pure capital accumulation into one with capital accumulation and endogenous technical change.

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Paper provided by Institut für Volkswirtschaft und Statistik (IVS), University of Mannheim in its series IVS discussion paper series with number 607.

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Handle: RePEc:mea:ivswpa:607

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Postal: Institut für Volkswirtschaft und Statistik, L7, 3-5, Room 408, University of Mannheim, 68131 Mannheim
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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  1. Hellwig, Martin & Irmen, Andreas, 2001. "Endogenous Technical Change in a Competitive Economy," Journal of Economic Theory, Elsevier, vol. 101(1), pages 1-39, November. [Downloadable!] (restricted)
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  2. Galor, Oded & Moav, Omer, 2001. "Das Human Kapital," CEPR Discussion Papers 2701, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December. [Downloadable!] (restricted)
  4. Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
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  5. Howitt, Peter & Aghion, Philippe, 1998. " Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth," Journal of Economic Growth, Springer, vol. 3(2), pages 111-30, June. [Downloadable!] (restricted)
  6. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August. [Downloadable!] (restricted)
  7. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  8. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May. [Downloadable!] (restricted)
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