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A New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change

  • Growiec, Jakub

This paper follows Jones (2005) in his approach to deriving the global production function from microfoundations. His framework is generalized by allowing for dependence between the Pareto distributions of labor- and capital-augmenting developments. Using the Clayton copula family to capture this dependence, we derive a “Clayton-Pareto” class of production functions that nests both the Cobb-Douglas and the CES. Embedding the resultant production function in a neoclassical growth framework, we draw conclusions for the long-run direction of technical change. Jones’ result of Cobb-Douglas global production functions and purely labor-augmenting technical change hinges on the assumption of independence of marginal Pareto distributions. In our more general case, the shape of local production functions matters for the shape of the global production function, and technical change augments both factors in the long run. Furthermore, the elasticity of substitution between capital and labor may exceed unity and thus yield endogenous growth.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7069.

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Date of creation: 19 Jun 2006
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Handle: RePEc:pra:mprapa:7069
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  1. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  2. de La Grandville, Olivier, 1989. "In Quest of the Slutsky Diamond," American Economic Review, American Economic Association, vol. 79(3), pages 468-81, June.
  3. Revankar, Nagesh S, 1971. "A Class of Variable Elasticity of Substitution Production Functions," Econometrica, Econometric Society, vol. 39(1), pages 61-71, January.
  4. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers 2584, C.E.P.R. Discussion Papers.
  5. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 739-767.
  6. Atkinson, Anthony B & Stiglitz, Joseph E, 1969. "A New View of Technological Change," Economic Journal, Royal Economic Society, vol. 79(315), pages 573-78, September.
  7. Ola Olsson, 2005. "Technological Opportunity and Growth," Journal of Economic Growth, Springer, vol. 10(1), pages 31-53, 01.
  8. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-68, May.
  9. Charles I. Jones, 2005. "The Shape of Production Functions and the Direction of Technical Change," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 517-549.
  10. Susanto Basu & David N. Weil, 1998. "Appropriate Technology and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1025-1054.
  11. Yuhn, Ky-hyang, 1991. "Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 340-46, May.
  12. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
  13. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
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