Modern Universal Growth Theory (MUGT): A comprehensive upgrade to Solow

Marcel R. de la Fonteijne

MPRA Paper from University Library of Munich, Germany

Abstract: For several decades, it has been recognized that the implementation of capital and labor augmented technical progress, as is done to date, leads to a theoretical paradox: either the CES production function has to be Cobb-Douglas or there exists labor augmented technical progress only. This so-called “Cobb-Douglas or labor augmented technical progress only paradox” continues to appear in economic models despite its inconsistency. In this paper, we reject the conventional approach, i.e., all kind of neutral and non-neutral capital and labor augmented technical progress and propose a revised implementation of technical progress that resolves the paradox. Economic growth is modeled as partly exogenous, driven by technical change, and partly endogenous, driven by capital accumulation. We provide formulas to translate total factor productivity (TFP) into economic growth to show the connection, thereby clarifying the link between TFP and output dynamics. This approach offers a new perspective on the Solow model and opens alternative paths for investigating endogenous growth mechanisms.

Keywords: Capital and Labor Augmented Technical Progress; Growth Model; Maximum Profit Condition; Production Function; General Technological Progress; Capital-Labor-mix; Elasticity of Substitution; DSGE; Total Factor Productivity; Solow model; Hicks; Harrod (search for similar items in EconPapers)
JEL-codes: E00 E20 E23 E24 (search for similar items in EconPapers)
Date: 2025-06-24
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125134

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