Capital Accumulation, Factor Prices and Endogenous Labor-Saving Technical Change

Irmen, Andreas

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URN: urn:nbn:de:bsz:180-madoc-10041
Document Type: Working paper
Year of publication: 2002
The title of a journal, publication series: Discussion Papers / Institut für Volkswirtschaftslehre und Statistik
Volume: 607
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Institut für Volkswirtschaftslehre und Statistik > Discussion Papers
Subject: 330 Economics
Classification: JEL: O33 O41 J30 D24 ,
Subject headings (SWD): Endogenes Wirtschaftswachstum , Wachstumsmodell , Wirtschaftswachstum
Abstract: The process of capital accumulation understood as a rise in the capitallabor ratio steadily raises the scarcity of labor with respect to capital. This movement in relative factor prices may act as an incentive for profit-maximizing firms to direct innovations towards labor saving technologies. We make this point in a model of endogenous technical change that relates the neoclassical growth paradigm to the concept of induced innovation. These ingredients suggest an economic development of economies characterized by an endogenous "run through stages". In early stages, the driving force of economic growth is capital accumulation because the return of physical capital is high and labor is cheap. In mature stages, however, labor is expensive so that firms invest in new technologies that economize on labor. Thus economies may evolve from a regime of pure capital accumulation into one with capital accumulation and endogenous technical change.
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