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The Shape of Production Functions and the Direction of Technical Change

  • Charles I. Jones

This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production function is Cobb-Douglas, and technical change in the long run is labor-augmenting. Kortum showed that Pareto distributions are necessary if search-based idea models are to exhibit steady-state growth. Here we show that this same assumption delivers the additional results about the shape of the production function and the direction of technical change. © 2005 MIT Press

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 120 (2005)
Issue (Month): 2 (May)
Pages: 517-549

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Handle: RePEc:tpr:qjecon:v:120:y:2005:i:2:p:517-549
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