Factor-Eliminating Technical Change
Endogenous growth requires that non-reproducible factors of production be either augmented or eliminated. Attention heretofore has focused almost exclusively on augmentation. In contrast, we study factor elimination. Maximizing agents decide when to reduce the importance of non-reproducible factors. We use a Cobb-Douglas production function with labor and capital as factors of production. There is no augmenting progress of any kind, whether Hicks, Harrod, or Solow neutral, thus excluding the standard engine of growth. What is new is the possibility of changing factor intensities endogenously by spending resources on R&D. The model allows derivation not only of the balanced growth solution but also of the full transition dynamics. There are two possible ultimate outcomes, depending on parameters and initial conditions. The economy may evolve into one that uses both labor and capital, or it may evolve into one that uses only capital. The first outcome is the standard Solow model; the second is the AK model of endogenous growth. The model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors, that is, one that is capable of supporting perpetual economic growth. The transition paths are interesting, allowing non-monotonic behavior of both the capital/labor ratio and the factor shares. An aspect of the transition path that is unique for a Cobb-Douglas economy is that the origin is not a steady state. An economy that starts with pure labor production simultaneously accumulates capital and increases its capital intensity to make the capital useful. The theory thus offers a purely endogenous explanation for the transition from a primitive to a developed economy, in contrast to other existing theories. Several aspects of the transition paths accord with the evidence, suggesting that the theory is reasonable. In contrast to almost all the existing endogenous growth literature, neither monopoly power nor an externality is a necessary condition for endogenous growth. It is sufficient that firms be able to appropriate the results of their research and development efforts.
|Date of creation:||2007|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joseph Zeira, 1998.
"Workers, Machines, and Economic Growth,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(4), pages 1091-1117.
- John Bound & George Johnson, 1995. "What are the causes of rising wage inequality in the United States?," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 9-17.
- Danny Givon, 2006. "Factor Replacement versus Factor Substitution, Mechanization and Asymptotic Harrod Neutrality," DEGIT Conference Papers c011_028, DEGIT, Dynamics, Economic Growth, and International Trade.
- Gary D. Hansen & Edward C. Prescott, 2002.
"Malthus to Solow,"
American Economic Review,
American Economic Association, vol. 92(4), pages 1205-1217, September.
- David N. Weil, 2005.
"Accounting for the Effect of Health on Economic Growth,"
NBER Working Papers
11455, National Bureau of Economic Research, Inc.
- David N. Weil, 2005. "Accounting for the Effect of Health on Economic Growth," Working Papers 2005-07, Brown University, Department of Economics.
- David Weil, 2006. "Accounting for the Effect of Health on Economic Growth," DEGIT Conference Papers c011_031, DEGIT, Dynamics, Economic Growth, and International Trade.
- ., 2005. "Inequalities, Economic Growth and Poverty Reduction," Chapters, in: Aid, Institutions and Development, chapter 5 Edward Elgar Publishing.
- Blanchard, Olivier, 1998.
"Revisiting European Unemployment : Unemployment, Capital Accumulation and Factor Prices,"
Economic and Social Research Institute (ESRI), number GLS28.
- Olivier Blanchard, 1998. "Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices," NBER Working Papers 6566, National Bureau of Economic Research, Inc.
- Francesco Caselli & James Feyrer, 2006.
"The Marginal Product of Capital,"
CEP Discussion Papers
dp0735, Centre for Economic Performance, LSE.
- Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
- Francesco Caselli & James Feyrer, 2006. "The marginal product of capital," LSE Research Online Documents on Economics 3560, London School of Economics and Political Science, LSE Library.
- Caselli, Francesco & Feyrer, James, 2005. "The Marginal Product of Capital," CEPR Discussion Papers 5203, C.E.P.R. Discussion Papers.
- Boldrin, Michele & Levine, David, 2002.
"Factor Saving Innovation,"
CEPR Discussion Papers
3262, C.E.P.R. Discussion Papers.
- Hernando Zuleta, 2008.
"An empirical note on factor shares,"
The Journal of International Trade & Economic Development,
Taylor & Francis Journals, vol. 17(3), pages 379-390.
- repec:pri:indrel:dsp01f1881k89j is not listed on IDEAS
- Alan Krueger, 1999.
"Measuring Labor's Share,"
NBER Working Papers
7006, National Bureau of Economic Research, Inc.
- Rebelo, Sergio, 1991.
"Long-Run Policy Analysis and Long-Run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 500-521, June.
- David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
- Michael Bar & Oksana Leukhina, 2010.
"Demographic Transition and Industrial Revolution: A Macroeconomic Investigation,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 424-451, April.
- Michael Bar & Oksana Leukhina, 2009. "Code and data files for "Demographic Transition and Industrial Revolution: A Macroeconomic Investigation"," Computer Codes 08-85, Review of Economic Dynamics.
- Michael Bar & Oksana Leukhina, 2009. "Supplemental Notes to "Demographic transition and industrial revolution: A macroeconomic investigation"," Technical Appendices 08-85, Review of Economic Dynamics.
- repec:fth:prinin:413 is not listed on IDEAS
- Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
- Douglas Gollin, 2002.
"Getting Income Shares Right,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 458-474, April.
- Hernando Zuleta, 2006.
"Factor saving innovations and factor income shares,"
DOCUMENTOS DE TRABAJO
002706, UNIVERSIDAD DEL ROSARIO.
- Hernando Zuleta, 2008. "Factor Saving Innovations and Factor Income Shares," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 836-851, October.
- Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
- Peretto, Pietro F., 1996.
"Technological Change and Population Growth,"
96-28, Duke University, Department of Economics.
- Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
- Robert M. Solow, 1994. "Perspectives on Growth Theory," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 45-54, Winter.
- Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
- Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
- Alan B. Krueger, 1999. "Measuring Labor's Share," Working Papers 792, Princeton University, Department of Economics, Industrial Relations Section..
- Sturgill, Brad, 2012. "The relationship between factor shares and economic development," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1044-1062.
When requesting a correction, please mention this item's handle: RePEc:red:sed007:272. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.