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Capital Deepening and Non-Balanced Economic Growth

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  • Daron Acemoglu
  • Veronica Guerrieri

    ()
    (MIT)

Abstract

This paper constructs a model of non-balanced economic growth. The main economic force is the combination of differences in factor proportions and capital deepening. Capital deepening tends to increase the relative output of the sector with a greater capital share (despite the equilibrium reallocation of capital and labor away from that sector). We first illustrate this force using a general two-sector model. We then investigate it further using a class of models with constant elasticity of substitution between two sectors and Cobb- Douglas production functions in each sector. In this class of models, non-balanced growth is shown to be consistent with an asymptotic equilibrium with constant interest rate and capital share in national income. Finally, we construct and analyze a model of “nonbalanced endogenous growth,†which extends these results to an economy with endogenous and directed technical change, and demonstrates that non-balanced technological progress can be an equilibrium phenomenon

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 207.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:207

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Keywords: capital deepening; endogenous growth; multi-sector growth; non-balanced;

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