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Growth with a Fixed Factor

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  • Erzo G. J. Luttmer

    (Department of Economics, University of Minnesota and Federal Reserve Bank of Minnesota)

Abstract

Consider an economy in which a fi xed supply of unskilled labor can be combined with knowledge capital to produce consumption. The technology for accumulating knowledge capital is linear in knowledge capital. This leads to long-term growth if the production function for consumption goods is approximately Cobb-Douglas for large values of the stock of knowledge capital. The quality-ladder economy of Boldrin and Levine [2010] generates a menu of Leontief technologies with this feature. If the initial capital stock is low, there can be a long period of stagnation before unskilled wages start to grow, as in Lewis [1954]. A small open economy with a sufficiently low initial capital stock will run a trade surplus during its initial stages of development.

Suggested Citation

  • Erzo G. J. Luttmer, 2012. "Growth with a Fixed Factor," Working Papers 2012-1, University of Minnesota, Department of Economics.
    • Handle: RePEc:min:wpaper:2012-1
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    References listed on IDEAS

    as
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    8. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    9. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-1038, October.
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    Cited by:

    1. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    2. Erzo G. J. Luttmer, 2013. "The Stolper-Samuelson effects of a decline in aggregate consumption," Working Papers 703, Federal Reserve Bank of Minneapolis.
    3. Amol Amol & Erzo G. J. Luttmer, 2022. "Permanent Primary Deficits, Idiosyncratic Long-Run Risk, and Growth," Working Papers 794, Federal Reserve Bank of Minneapolis.

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    More about this item

    Keywords

    economic growth; aggregate productivity;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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