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Technical change in a neoclassical two-sector model of optimal growth

  • Mehdi Senouci

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

This paper investigates into the consequences of sector-speci c technological progress in a two-sector, optimal growth model. In accordance with existing theory, we find that consumption-specifi c Hicks-neutral technical shocks increase consumption but leave other parameters unchanged. Hicks-neutral, investment-specifi c technical shocks increase the wage-rental ratio, and increase steady-state consumption by a factor equal to the macroeconomic ratio of capital share to labor share. If the elasticity of substitution is equal to one in the long run, the growth regime with only investment-specifi c technical change is sustainable and asymptotically balanced.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00589627.

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Date of creation: Apr 2012
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Handle: RePEc:hal:psewpa:halshs-00589627
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  1. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  2. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November.
  3. Mehdi Senouci, 2011. "Optimal growth and the golden rule in a two-sector model of capital accumulation," PSE Working Papers halshs-00572510, HAL.
  4. Cremers, Emily T., 2006. "Dynamic efficiency in the two-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1915-1936, November.
  5. Michael Gort & Jeremy Greenwood & Peter Rupert, 1999. "How much of economic growth is fueled by investment-specific technological progress?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Mar.
  6. Robert C. Allen, 2005. "Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution," Economics Series Working Papers 239, University of Oxford, Department of Economics.
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