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Factor-eliminating technical change

  • Peretto, Pietro F.
  • Seater, John J.

Perpetual growth requires offsetting diminishing returns to reproducible factors of production. In this article we present a theory of factor elimination. For simplicity and clarity, there is no augmentation of non-reproducible factors, thus excluding the standard engine of growth. By spending resources on R&D, agents learn to change the exponents of a Cobb–Douglas production function. We obtain the economy's balanced growth path and complete transition dynamics. The theory provides a mechanism for the transition from an initial technology incapable of supporting perpetual growth to one with constant returns to reproducible factors that supports it.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 4 ()
Pages: 459-473

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Handle: RePEc:eee:moneco:v:60:y:2013:i:4:p:459-473
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