Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model

Andreas Irmen and Amer Tabakovic

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: The determinants of the direction of technical change and their implications for economic growth and economic policy are studied in the one-sector neoclassical growth model of Ramsey, Cass, and Koopmans extended to allow for endogenous capital- and labor-augmenting technical change. We develop a novel micro-foundation for the competitive production sector that rests on the idea that the fabrication of output requires tasks to be performed by capital and labor. Firms may engage in innovation investments that increase the productivity of capital and labor in the performance of their respective tasks. These investments are associated with new technological knowledge that accumulates over time and sustains long-run growth. We show that the equilibrium allocation is not Pareto-efficient since both forms of technical change give rise to an inter-temporal knowledge externality. An appropriate policy of investment subsidies may implement

Keywords: the; efficient; allocation. (search for similar items in EconPapers)
JEL-codes: O31 O33 O41 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cse, nep-gro and nep-ino
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Endogenous capital- and labor-augmenting technical change in the neoclassical growth model (2017)
Working Paper: Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:15-15

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