Economic growth and economic development 97

Hicks-neutral, Solow-neutral and Harrod-neutral shifts in isoquants.. Nevertheless, even 2.40 is a restriction on the form of technological progress, since changes in technology, A t, co

Introduction to Modern Economic Growth

K

Y Y K

Y Y

K

Figure 2.12 Hicks-neutral, Solow-neutral and Harrod-neutral shifts

in isoquants

a production function that looks like

(2.40) 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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