Reformulating Technical Change and Growth Theory

Gary Jefferson ()
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Gary Jefferson: Brandeis University

No 111, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: This paper clarifies certain errors and inconsistencies that have become embedded in the conventional neoclassical growth model. The paper demonstrates that characterizing technical change in the Solow model as "purely Harrod-neutral labor augmenting" seriously compromises the role of capital and neoclassical principles in framing the process of economic growth. The basic argument of this paper is that by ignoring the actual elements of the so-called "degeneration" of Hicks-neutral or other capital-labor augmenting technical change, conventional presentations of the Solow model have foreclosed avenues for a deeper understanding of key features of economic growth. The paper develops the paradigm of Hick-Harrod technical change that is consistent with steady state growth under a wide range of values of the substitution elasticity, while also enabling a simplification of conditions required for the steady state. By endogenizing significant aspects of the growth process, the model opens the door to possibilities for a more unified theory of neoclassical growth, endogenous growth, and growth accounting.

Pages: 43 pages
Date: 2017-02
New Economics Papers: this item is included in nep-gro
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