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Endogenous Capital-Augmenting Technological Change

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  • Gregory Casey
  • Ryo Horii

Abstract

We construct a 3-factor, directed technical change growth model that exhibits capital-augmenting technical change on the balanced growth path (BGP), circumventing the issues usually caused by the 2-factor Uzawa growth theorem. We calibrate the model to the United States and consider a non-unitary elasticity of substitution between capital and labor. We show that the model converges to the BGP with capital-augmenting technical change from any initial condition. Our results indicate that natural resources and directed technical change play a central role in explaining balanced growth.

Suggested Citation

  • Gregory Casey & Ryo Horii, 2023. "Endogenous Capital-Augmenting Technological Change," ISER Discussion Paper 1220, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:1220
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    File URL: https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2023/DP1220.pdf
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    References listed on IDEAS

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    1. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average Debt and Equity Returns: Puzzling?," American Economic Review, American Economic Association, vol. 93(2), pages 392-397, May.
    2. Ryo Horii & Tatsuro Iwaisako, 2007. "Economic Growth with Imperfect Protection of Intellectual Property Rights," Journal of Economics, Springer, vol. 90(1), pages 45-85, January.
    3. Antràs Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-36, April.
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    Cited by:

    1. Casey, Gregory, 2024. "Unemployment and the direction of technical change," European Economic Review, Elsevier, vol. 168(C).

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