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A theory of the dynamics of factor shares

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  • Boldrin, Michele
  • Levine, David K.
  • Wang, Yong
  • Zhu, Lijun

Abstract

This paper proposes a theory of the dynamics of factor shares within the context of an equilibrium model of endogenous innovation, growth, and cycles. Our deterministic model rests on two assumptions: (i) production requires two complementary inputs, capital, and labor, and (ii) technical progress is labor-saving and embodied in capital goods. The model’s unique equilibrium path displays recurring growth cycles, each consisting of an adoption and innovation phase, along which factor shares fluctuate within bounds. The interaction between factor prices and opportunities for labor-saving innovations brings about both persistent growth and aggregate oscillations through which it takes place. We provide evidence that the model-implied correlations between factor shares and the other labor market variables are consistent with the data.

Suggested Citation

  • Boldrin, Michele & Levine, David K. & Wang, Yong & Zhu, Lijun, 2024. "A theory of the dynamics of factor shares," Journal of Monetary Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:moneco:v:148:y:2024:i:c:s0304393224000631
    DOI: 10.1016/j.jmoneco.2024.103610
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    References listed on IDEAS

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    More about this item

    Keywords

    Factor shares; Competitive innovation; Labor-saving technical change; Growth cycles;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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