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Factor-eliminating technical change

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

Abstract

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.

Suggested Citation

  • Peretto, Pietro F. & Seater, John J., 2013. "Factor-eliminating technical change," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 459-473.
    • Handle: RePEc:eee:moneco:v:60:y:2013:i:4:p:459-473
    DOI: 10.1016/j.jmoneco.2013.01.005
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    More about this item

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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