Working Paper: CEPR ID: DP4266
Authors: Andreas Irmen
Abstract: Extensive growth based on the expansion of inputs is likely to be subject to diminishing returns. Therefore it is often viewed as having no effect on per capita magnitudes in the long run. This Paper argues that periods of extensive growth through capital accumulation may be a precursor to periods of intensive growth during which output per unit of input grows through endogenous technical change. Such a sequence of stages of development occurs as capital accumulation affects the incentives to engage in labour-saving technical change. A steady rise in the capital-labour ratio affects the relative scarcity of factors of production, their (expected) relative price, and induces innovation investments.
Keywords: endogenous technical change; induced innovation; neoclassical growth model; productivity growth
JEL Codes: D24; J30; O33; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital accumulation (E22) | Output per unit of input (E23) |
| Capital accumulation (E22) | Capital-labor ratio (J24) |
| Capital-labor ratio (J24) | Expected relative price of factors (F16) |
| Expected relative price of factors (F16) | Innovation investments (O31) |
| Capital accumulation (E22) | Innovation investments (O31) |