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Engel's Law and Growth with Directed Technical Change

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  • Timo Boppart

Abstract

This paper presents a tractable endogenous two-sector growth model with non-Gorman intra-temporal preferences and directed technical change. One of the two consumption goods is a necessity, whereas the other is a luxury. If the economy starts with a low initial knowledge stock, households are relatively poor and a high expenditure share is devoted to necessities. Therefore, in early phases of development, technical innovations are mainly directed toward the necessity sector. According to Engel’s law, growth in income increases the expenditure share of the luxury sector. Biased technical change constitutes another force that leads to shifts in expenditure shares. The resulting structural change is accompanied by increasing R&D investments in the luxury sector, whereas investments in the necessity sector become less attractive. The asymptotic equilibrium consists of a nonbalanced constant growth path along which the Kaldor facts hold, and growth is mainly driven by the luxury sector.

Suggested Citation

  • Timo Boppart, 2010. "Engel's Law and Growth with Directed Technical Change," DEGIT Conference Papers c015_017, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c015_017
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    File URL: http://degit.sam.sdu.dk/papers/degit_15/c015_017.pdf
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    References listed on IDEAS

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    Cited by:

    1. Volker Grossmann, 2013. "Structural Change, Urban Congestion, and the End of Growth," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 165-181, May.

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    More about this item

    Keywords

    Engel’s law; directed technical change; structural change; nonbalanced growth; two-sector model; non-Gorman preferences.;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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