Model of Optimal Economic Growth with Endogenous Bias

Abstract

The objective of the paper is to develop a model of optimal endogenous technological progress that will exhibit two properties sought in growth models: (1) The bias will depend on the parameters of the model-particularly those affecting the cost of inputs-instead of being constrained to be Harrod neutral; (2) factor shares will be constant in steady state. Using previously derived sufficient conditions, we show the conditions under which such a model can be constructed.We wish to acknowledge helpful comments from

A Generalized Growth Model and the Direction of Technological Progress

“…Sato (1996) showed that a non-linear capital accumulation process which allows for diminishing returns is necessary if the steady-state is to include also capital-enhancing technological progress. Sato et al (1999Sato et al ( , 2000 also proposed specific models of that nature where steady-states include capitalenhancing technological progress. Irmen (2013) proved that technological progress could include capital-augmentation if adjustment costs become a part of the capital accumulation process.…”

“…In the specific model of Section IV, as long as 0 < < 1 − / , setting = 1 implies 0 < < ∞ by equation(20). As a result, from equation(22), is necessary to obtain 0 < < ∞ Sato (1999Sato ( , 2000. and Irmen (2013) fit into this parameter configuration.…”

A Note on Modelling Endogenous Growth

“…we obtain H=h(gr, g2; ui, u2, u3)+plgl(u1 +u2-e)+p2g2(u3+n-e) The above can be solved to yield the optimal paths of investments in K, A and B [Sate, Ramachandran, and Lian (1993)].…”