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Is Harrod-neutrality Needed for Balanced Growth? Uzawa's Theorem Revisited

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

Taking into account the adjustment costs of investment, this paper proves that it is not the neoclassical growth model itself but the specific form of capital accumulation function that requires technical change to exclusively be Harrod neutral in steady state. Uzawa’s(1961)steady-state growth theorem holds only when the marginal efficiency of capital accumulation is constant, which implies that the capital supply is infinitely elastic. Therefore, it is unnecessary to make strong assumptions about the shape of the production function and the direction of technical change for neoclassical growth model to exhibit steady-state growth.

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File URL: http://mpra.ub.uni-muenchen.de/55046/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 55046.

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Date of creation: 2014
Date of revision: Feb 2014
Handle: RePEc:pra:mprapa:55046

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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. Charles I. Jones, 2004. "The Shape of Production Function and the Direction of Technical Change," NBER Working Papers 10457, National Bureau of Economic Research, Inc.
  3. Foley, Duncan K & Sidrauski, Miguel, 1970. "Portfolio Choice, Investment and Growth," American Economic Review, American Economic Association, vol. 60(1), pages 44-63, March.
  4. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
  5. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
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