Capital deepening and non-balanced economic growth
By: Daron Acemoglu [and] Veronica Guerrieri
Contributors: Guerrieri, Veronica; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 06-24; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 06-24.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Number of pages: 53
Description: This paper constructs a model of non-balanced economic growth. The main economic force is the combination of differences in factor proportions and capital deepening. Capital deepening tends to increase the relative output of the sector with a greater capital share, but simultaneously induces a reallocation of capital and labor away from that sector. We first illustrate this force using a general two-sector model. We then investigate it further using a class of models with constant elasticity of substitution between two sectors and Cobb-Douglas production functions in each sector. In this class of models, non-balanced growth is shown to be consistent with an asymptotic equilibrium with constant interest rate and capital share in national income. We also show that for realistic parameter values, the model generates dynamics that are broadly consistent with US data. In particular, the model generates more rapid growth of employment in less capital-intensive sectors, more rapid growth of real output in more capital-intensive sectors and aggregate behavior in line with the Kaldor facts. Finally, we construct and analyze a model of "nonbalanced endogenous growth," which extends the main results of the paper to an economy with endogenous and directed technical change.

(cont.) This model shows that equilibrium will typically involve endogenous non-balanced technological progress. Keywords: capital deepening, endogenous growth, multi-sector growth, non-balanced economic growth. JEL Classifications: O40, O41, O30.
Notes: "August 15, 2006."

Includes bibliographical references (p. 49-53).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.