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Factor Augmentation, Factor Elimination, And Economic Growth

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  • John Seater
  • Karine Yenokyan

Abstract

Economic growth theory distinguishes between reproducible and nonreproducible factors of production. In traditional growth models based on factor‐augmenting technical change, perpetual economic growth requires that each essential nonreproducible factor, such as labor, be augmented by a reproducible factor, such as human capital. Recent models of factor‐eliminating technical change deliver perpetual growth by eliminating the nonreproducible factors. Heretofore, the literature has kept factor augmentation and factor elimination separate. We analyze a model with both. The model generalizes the traditional factor augmentation approach by relaxing the usual restriction that factor elimination is absent. We obtain the striking result that factor‐augmenting technical change is a misspecification when factor‐eliminating technical change is present. The result raises several questions about technical change and endogenous growth. (JEL O41, O31, O33)

Suggested Citation

  • John Seater & Karine Yenokyan, 2019. "Factor Augmentation, Factor Elimination, And Economic Growth," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 429-452, January.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:429-452
    DOI: 10.1111/ecin.12711
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    References listed on IDEAS

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    1. Peretto, Pietro F. & Seater, John J., 2013. "Factor-eliminating technical change," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 459-473.
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    6. Peretto, Pietro F., 1999. "Firm size, rivalry and the extent of the market in endogenous technological change," European Economic Review, Elsevier, vol. 43(9), pages 1747-1773, October.
    7. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-692, May.
    8. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
    9. Sturgill, Brad, 2014. "Back to the basics: Revisiting the development accounting methodology," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 52-68.
    10. Sturgill, Brad, 2012. "The relationship between factor shares and economic development," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1044-1062.
    11. John Bound & George Johnson, 1995. "What are the causes of rising wage inequality in the United States?," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 9-17.
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    Cited by:

    1. John Gilbert & Reza Oladi, 2021. "Labor‐eliminating technical change in a developing economy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(1), pages 88-100, March.
    2. John Gilbert & Onur A. Koska & Reza Oladi, 2022. "Labor‐eliminating technology, wage inequality, and trade protectionism," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1249-1265, December.
    3. Jiancai Pi & Shuxi Duan, 2023. "Appropriation, migration, and unemployment," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 430-456, September.
    4. Dawson, John W. & Sturgill, Brad, 2022. "Market Institutions and Factor Shares Across Countries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 266-289.

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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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