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The Shape of Production Function and the Direction of Technical Change

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  • Charles I. Jones

Abstract

This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production function is Cobb-Douglas, and technical change in the long run is labor-augmenting. Kortum (1997) showed that Pareto distributions are necessary if search-based idea models are to exhibit steady-state growth. Here we show that this same assumption delivers the additional results about the shape of the production function and the direction of technical change.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10457.

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Date of creation: May 2004
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Publication status: published as Jones, Charles I. "The Shape Of Production Functions And The Direction Of Technical Change," Quarterly Journal of Economics, 2005, v120(2,May), 517-549.
Handle: RePEc:nbr:nberwo:10457

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  1. Simon Gilchrist & John C. Williams, 1998. "Putty-Clay and Investment: A Business Cycle Analysis," NBER Working Papers 6812, National Bureau of Economic Research, Inc.
  2. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  3. Dietmar Harhoff & Frederic M. Scherer & Katrin Vopel, 1997. "Exploring the Tail of Patented Invention Value Distributions," CIG Working Papers FS IV 97-27, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Grabowski, Henry, 2002. "Patents and New Product Development in the Pharmaceutical and Biotechnology Industries," Working Papers 02-25, Duke University, Department of Economics.
  5. Chung, Kee H & Cox, Raymond A K, 1994. "A Stochastic Model of Superstardom: An Application of the Yule Distribution," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 771-75, November.
  6. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
  7. Juan Carlos Cordoba, 2003. "On the Distribution of City Sizes," Urban/Regional 0302002, EconWPA.
  8. Emmanuel M. Drandakis & Edmond S. Phelps, 1965. "A Model of Induced Invention, Growth and Distribution," Cowles Foundation Discussion Papers 186, Cowles Foundation for Research in Economics, Yale University.
  9. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  10. Ricardo Lagos, 2006. "A model of TFP," Staff Report 345, Federal Reserve Bank of Minneapolis.
  11. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  12. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  13. Esteban Rossi-Hansberg & Mark L.J. Wright, 2005. "Urban Structure and Growth," NBER Working Papers 11262, National Bureau of Economic Research, Inc.
  14. Karl Whelan, 2001. "A two-sector approach to modeling U.S. NIPA data," Finance and Economics Discussion Series 2001-04, Board of Governors of the Federal Reserve System (U.S.).
  15. Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
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