Factor Augmentation, Factor Elimination, and Economic Growth

24 Pages Posted: 5 Dec 2018

See all articles by John J. Seater

John J. Seater

Economics Dept., Boston College

Karine Yenokyan

Nazarbayev University

Date Written: January 2019

Abstract

Economic growth theory distinguishes between reproducible and nonreproducible factors of production. In traditional growth models based on factor‐augmenting technical change, perpetual economic growth requires that each essential nonreproducible factor, such as labor, be augmented by a reproducible factor, such as human capital. Recent models of factor‐eliminating technical change deliver perpetual growth by eliminating the nonreproducible factors. Heretofore, the literature has kept factor augmentation and factor elimination separate. We analyze a model with both. The model generalizes the traditional factor augmentation approach by relaxing the usual restriction that factor elimination is absent. We obtain the striking result that factor‐augmenting technical change is a misspecification when factor‐eliminating technical change is present. The result raises several questions about technical change and endogenous growth.

JEL Classification: O41, O31, O33

Suggested Citation

Seater, John J. and Yenokyan, Karine, Factor Augmentation, Factor Elimination, and Economic Growth (January 2019). Economic Inquiry, Vol. 57, Issue 1, pp. 429-452, 2019, Available at SSRN: https://ssrn.com/abstract=3295887 or http://dx.doi.org/10.1111/ecin.12711

John J. Seater (Contact Author)

Economics Dept., Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Karine Yenokyan

Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

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