FACTOR SUBSTITUTION, MECHANIZATION, AND ECONOMIC GROWTH

Hideki Nakamura

The Japanese Economic Review, 2010, vol. 61, issue 2, 266-281

Abstract: This paper tries to explain the polarization of economic growth through mechanization. We derive a complementary relationship between capital accumulation and mechanization. While we assume an external effect that occurs as a result of mechanization, given the external effect, mechanization yields a constant‐elasticity‐of‐substitution production function in which the elasticity‐of‐substitution is greater than unity as the envelope of Cobb–Douglas production functions. When mechanization is difficult, which implies a low value for the elasticity‐of‐substitution, and the external effect is weak, there is potential for multiple steady states to exist.

Date: 2010
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