Economic growth and economic development 100
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Introduction to Modern Economic Growth
production function and the resource constraint. Consequently, the result is a very
powerful one.
Before providing a more economic intuition for this result, let us state an immediate implication of this proposition as a corollary, which will be useful both in the
discussions below and for the intuition:
Corollary 2.3. Under the assumptions of Proposition 2.11, if an economy has
an asymptotic path with constant growth of output, capital and consumption, then
asymptotically technological progress can be represented as Harrod neutral (purely
labor augmenting).
The intuition for Proposition 2.11 and for the corollary is simple. We have
assumed that the economy features capital accumulation in the sense that gK +δ > 0.
From the aggregate resource constraint, this is only possible if output and capital
grow at the same rate. Either this growth rate is equal to the rate of population
growth, n, in which case, there is no technological change (i.e., the proposition
applies with g = 0), or the economy exhibits growth of per capita income and
capital-labor ratio. The latter case creates an asymmetry between capital and labor,
in the sense that capital is accumulating faster than labor. Constancy of growth then
requires technological change to make up for this asymmetry–that is, technology
to take a labor-augmenting form.
This intuition does not provide a reason for why technology should take this
labor-augmenting (Harrod-neutral) form, however. The proposition and its corollary
simply state that if technology did not take this form, and asymptotic path with
constant growth rates would not be possible. At some level, this is a distressing
result, since it implies that balanced growth (in fact something weaker than balanced
growth) is only possible under a very stringent assumption. It also provides no
reason why technological change should take this form. Nevertheless, in Chapter
15, we will see that when technology is endogenous, the intuition in the previous
paragraph also works to make technology endogenously more labor-augmenting than
capital augmenting.
Notice also that this proposition does not state that technological change has
to be labor augmenting all the time. Instead, it requires that technological change
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