Journal of Monetary Economics2013-09-05 2:57 AM

Factor-eliminating technical change

Highlights • We study economic growth through eliminating rather than augmenting non-reproducible factors. • We obtain the balanced growth path and complete transition dynamics in market equilibrium. • The singularity restriction required for growth is an endogenous and intuitive outcome. • Several testable and sometimes unexpected implications receive support from the data. Abstract Perpetual growth requires offsetting diminishing returns to reproducible factors of production. In this article we present a theory of factor elimination. For simplicity and clarity, there is no augmentation of non-reproducible factors, thus excluding the standard engine of growth. By spending resources on R&D, agents learn to change the exponents of a Cobb–Douglas production function. We obtain the economy's balanced growth path and complete transition dynamics. The theory provides a mechanism for the transition from an initial technology incapable of supporting perpetual growth to one with constant returns to reproducible factors that supports it.

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Journal of Monetary Economics

The Journal of Monetary Economics is a peer-reviewed academic journal covering research on macroeconomics and monetary economics. It is published by Elsevier and was established in October 1973 by Karl Brunner and Charles I. Plosser.

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