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A New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change

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  • Growiec, Jakub

Abstract

This paper follows Jones (2005) in his approach to deriving the global production function from microfoundations. His framework is generalized by allowing for dependence between the Pareto distributions of labor- and capital-augmenting developments. Using the Clayton copula family to capture this dependence, we derive a “Clayton-Pareto” class of production functions that nests both the Cobb-Douglas and the CES. Embedding the resultant production function in a neoclassical growth framework, we draw conclusions for the long-run direction of technical change. Jones’ result of Cobb-Douglas global production functions and purely labor-augmenting technical change hinges on the assumption of independence of marginal Pareto distributions. In our more general case, the shape of local production functions matters for the shape of the global production function, and technical change augments both factors in the long run. Furthermore, the elasticity of substitution between capital and labor may exceed unity and thus yield endogenous growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7069.

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Date of creation: 19 Jun 2006
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Handle: RePEc:pra:mprapa:7069

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Keywords: global production function; technology frontier; CES; Pareto distribution; Clayton copula;

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References

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  1. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers 2584, C.E.P.R. Discussion Papers.
  2. Susanto Basu & David N. Weil, 1998. "Appropriate Technology And Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1025-1054, November.
  3. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-68, May.
  4. Revankar, Nagesh S, 1971. "A Class of Variable Elasticity of Substitution Production Functions," Econometrica, Econometric Society, vol. 39(1), pages 61-71, January.
  5. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
  6. Ola Olsson, 2005. "Technological Opportunity and Growth," Journal of Economic Growth, Springer, vol. 10(1), pages 31-53, 01.
  7. 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.
  8. de La Grandville, Olivier, 1989. "In Quest of the Slutsky Diamond," American Economic Review, American Economic Association, vol. 79(3), pages 468-81, June.
  9. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  10. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
  11. Yuhn, Ky-hyang, 1991. "Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 340-46, May.
  12. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  13. Atkinson, Anthony B & Stiglitz, Joseph E, 1969. "A New View of Technological Change," Economic Journal, Royal Economic Society, vol. 79(315), pages 573-78, September.
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Citations

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Cited by:
  1. Growiec, Jakub, 2008. "Productivity differences across OECD countries, 1970–2000: the world technology frontier revisited," MPRA Paper 11605, University Library of Munich, Germany.
  2. Lemin Wu & Rohan Dutta & David K Levine & Nicholas W Papageorge, 2014. "Entertaining Malthus: Bread, Circuses and Economic Growth," Levine's Bibliography 786969000000000853, UCLA Department of Economics.
  3. Jakub Growiec, 2011. "A microfoundation for normalized CES production functions with factor-augmenting technical change," National Bank of Poland Working Papers 98, National Bank of Poland, Economic Institute.
  4. Jakub Growiec, 2009. "Knife-Edge Conditions in the Modeling of Long-Run Growth Regularities," National Bank of Poland Working Papers 68, National Bank of Poland, Economic Institute.
  5. Growiec, Jakub, 2013. "Factor-augmenting technology choice and monopolistic competition," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 86-94.
  6. Harashima, Taiji, 2012. "A Theory of Intelligence and Total Factor Productivity: Value Added Reflects the Fruits of Fluid Intelligence," MPRA Paper 43151, University Library of Munich, Germany.
  7. Jakub Growiec, 2012. "The World Technology Frontier: What Can We Learn from the US States?-super-," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(6), pages 777-807, December.
  8. Harashima, Taiji, 2009. "A Theory of Total Factor Productivity and the Convergence Hypothesis: Workers’ Innovations as an Essential Element," MPRA Paper 15508, University Library of Munich, Germany.
  9. McAdam, Peter & Willman, Alpo, 2013. "Medium Run Redux," Macroeconomic Dynamics, Cambridge University Press, vol. 17(04), pages 695-727, June.
  10. Miguel A León-Ledesma & Peter McAdam & Alpo Willman, 2012. "Non-Balanced Growth and Production Technology Estimation," Studies in Economics 1204, Department of Economics, University of Kent.
  11. McAdam, Peter & Willman, Alpo, 2008. "Medium run redux: technical change, factor shares and frictions in the euro area," Working Paper Series 0915, European Central Bank.
  12. Harashima, Taiji, 2011. "A Model of Total Factor Productivity Built on Hayek’s View of Knowledge: What Really Went Wrong with Socialist Planned Economies?," MPRA Paper 29107, University Library of Munich, Germany.

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