Working Paper: CEPR ID: DP11063
Authors: Gene Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
Abstract: Evidence for the United States suggests balanced growth despite falling investment-good prices and less than unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that introducing human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for several neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose their time in school matches key features of the U.S. record.
Keywords: balanced growth; capital-skill complementarity; neoclassical growth; technological progress
JEL Codes: E1; J2; O1; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| human capital accumulation (J24) | effective labor growth (J89) |
| capital accumulation (E22) | marginal product of schooling (J24) |
| technological progress (O33) | elasticity of substitution between capital and labor (J24) |
| investments in education (I26) | capital share in national income (D33) |
| educational attainment (I21) | effective capital growth faster than technology-augmented labor (O49) |
| human capital accumulation (endogenous) (J24) | effective labor growth aligns with effective capital growth (J24) |