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Capital Deepening and Nonbalanced Economic Growth

  • Daron Acemoglu
  • Veronica Guerrieri

We present a model of nonbalanced growth based on differences in factor proportions and capital deepening. Capital deepening increases the relative output of the more capital-intensive sector but simultaneously induces a reallocation of capital and labor away from that sector. Using a two-sector general equilibrium model, we show that nonbalanced growth is consistent with an asymptotic equilibrium with a constant interest rate and capital share in national income. For plausible parameter values, the model generates dynamics consistent with U.S. data, in particular, faster growth of employment and slower growth of output in less capital-intensive sectors, and aggregate behavior consistent with the Kaldor facts. (c) 2008 by The University of Chicago. All rights reserved..

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 116 (2008)
Issue (Month): 3 (06)
Pages: 467-498

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Handle: RePEc:ucp:jpolec:v:116:y:2008:i:3:p:467-498
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