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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

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.

Suggested Citation

  • Li, Defu & Huang, Jiuli & Zhou, Ying, 2014. "Is Harrod-neutrality Needed for Balanced Growth? Uzawa's Theorem Revisited," MPRA Paper 55046, University Library of Munich, Germany, revised Feb 2014.
    • Handle: RePEc:pra:mprapa:55046
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    References listed on IDEAS

    as
    1. Charles I. Jones, 2005. "The Shape of Production Functions and the Direction of Technical Change," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 517-549.
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    3. 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 163-178, May.
    4. 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 423-431, November.
    5. Foley, Duncan K & Sidrauski, Miguel, 1970. "Portfolio Choice, Investment and Growth," American Economic Review, American Economic Association, vol. 60(1), pages 44-63, March.
    6. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 321-321.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Neoclassical Growth Model; Uzawa’s Steady-state Growth Theorem; Direction of Technical Change; Adjustment Cost;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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