Economic growth and economic development 97
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Introduction to Modern Economic Growth
K
K
K
Y
Y
Y
L
0
0
L
0
Figure 2.12. Hicks-neutral, Solow-neutral and Harrod-neutral shifts
in isoquants.
a production function that looks like
(2.40)
Y
Y
Y
F [K (t) , L (t) , A (t)] = AH (t) F˜ [AK (t) K (t) , AL (t) L (t)] ,
which nests the constant elasticity of substitution production function introduced
in Example 2.3 above. Nevertheless, even (2.40) is a restriction on the form of
technological progress, since changes in technology, A (t), could modify the entire
production function.
It turns out that, although all of these forms of technological progress look
equally plausible ex ante, our desire to focus on balanced growth forces us to one
of these types of neutral technological progress. In particular, balanced growth
necessitates that all technological progress be labor augmenting or Harrod-neutral.
This is a very surprising result and it is also somewhat troubling, since there is no
ex ante compelling reason for why technological progress should take this form. We
now state and prove the relevant theorem here and return to the discussion of why
long-run technological change might be Harrod-neutral in Chapter 15.
2.6.3. The Steady-State Technological Progress Theorem. A version of
the following theorem was first proved by the early growth economist Hirofumi
Uzawa (1961). For simplicity and without loss of any generality, let us focus on
continuous time models. The key elements of balanced growth, as suggested by the
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