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Factor Substitution and Biased Technology with Balanced Growth

Leon-Ledesma, Miguel A. and Satchi, Mathan (2011) Factor Substitution and Biased Technology with Balanced Growth. In: Economic Growth and Development. Frontiers of Economics and Globalization, 11 . Emerald Group Publishing Limited, pp. 437-454. ISBN 978-1-78052-396-5. E-ISBN 978-1-78052-397-2. (doi:10.1108/S1574-8715(2011)0000011021) (KAR id:78621)


The famous Uzawa (1961) balanced growth theorem has exercised a tyranny of sorts over macroeconomics for decades. It is the prime reason why researchers use Cobb–Douglas production functions and abstract from considering movements in factor shares. Others have had to recourse to complex explanations for long-run labor augmentation in technical progress. In this chapter, we discuss the issues arising from this problem and propose a way of achieving balanced growth with a short-run production function where the elasticity of factor substitution is less than one, and capital augmenting technology shocks can be permanent. We do so by allowing firms to choose the relative reliance on capital in the production technology and introducing a suitable modification of the production function. We also provide some model simulations in the context of a simple deterministic neoclassical growth model.

Item Type: Book section
DOI/Identification number: 10.1108/S1574-8715(2011)0000011021
Uncontrolled keywords: Balanced growth Distribution parameter Elasticity of substitution Factor augmentation
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Mathan Satchithananthan
Date Deposited: 12 Nov 2019 21:54 UTC
Last Modified: 16 Nov 2021 10:26 UTC
Resource URI: (The current URI for this page, for reference purposes)

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