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Revisting the Steady-State Equilibrium Conditions of Neoclassical Growth Models

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  • Li, Defu
  • Huang, Jiuli
  • Zhou, Ying
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Abstract

Since the publication of Uzawa(1961), it has been widely accepted that technical change must be purely labor-augmenting for a growth model to exhibit steady-state path. But in this paper, we argue that such a constraint is unnecessary. Further, our model shows that, as long as the sum of the growth rate of marginal efficiency of capital accumulation and the rate of capital-augmenting technological progress equals zero, steady-state growth can be established without constraining the direction of technological change. Thus Uzawa’s theorem represents only a special case, and the explanatory power of growth models would be greatly enhanced if such a constraint is removed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 55045.

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Date of creation: May 2013
Date of revision: May 2013
Handle: RePEc:pra:mprapa:55045

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Keywords: Neoclassical Growth Model; Uzawa’s Steady-state Growth Theorem; Direction of Technical Change; Adjustment Cost;

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  1. Bailey, Roy E & Scarth, William M, 1980. "Adjustment Costs and Aggregate Demand Theory," Economica, London School of Economics and Political Science, vol. 47(188), pages 423-31, November.
  2. Growiec, Jakub, 2008. "Knife-edge conditions in the modeling of long-run growth regularities," MPRA Paper 9956, University Library of Munich, Germany.
  3. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  4. D. K. Foley & M. Sidrauski, 1968. "Portfolio Choice, Investment, and Growth," Working papers 24, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Charles I. Jones, 2005. "The Shape of Production Functions and the Direction of Technical Change," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 517-549, May.
  6. Mussa, Michael L, 1977. "External and Internal Adjustment Costs and the Theory of Aggregate and Firm Investment," Economica, London School of Economics and Political Science, vol. 44(174), pages 163-78, May.
  7. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
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