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Growth with a Fixed Factor

Erzo Luttmer

No 2012-1, Working Papers from University of Minnesota, Department of Economics

Abstract: Consider an economy in which a fi xed supply of unskilled labor can be combined with knowledge capital to produce consumption. The technology for accumulating knowledge capital is linear in knowledge capital. This leads to long-term growth if the production function for consumption goods is approximately Cobb-Douglas for large values of the stock of knowledge capital. The quality-ladder economy of Boldrin and Levine [2010] generates a menu of Leontief technologies with this feature. If the initial capital stock is low, there can be a long period of stagnation before unskilled wages start to grow, as in Lewis [1954]. A small open economy with a sufficiently low initial capital stock will run a trade surplus during its initial stages of development.

Keywords: economic growth; aggregate productivity (search for similar items in EconPapers)
JEL-codes: O4 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012-01-01
New Economics Papers: this item is included in nep-dev, nep-dge and nep-fdg
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