Working Paper: NBER ID: w21861
Authors: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
Abstract: The evidence for the United States points to balanced growth despite falling investment-good prices and an elasticity of substitution between capital and labor less than one. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that the introduction of human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if schooling is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for a variety of neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose the duration of their education matches key features of the U.S. economic record.
Keywords: Balanced Growth; Human Capital; Economic Growth
JEL Codes: E25; J24; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| endogenous schooling (J24) | balanced growth (O40) |
| elasticity of substitution between capital and labor (J24) | balanced growth (O40) |
| educational investment (I26) | economic output growth (O49) |
| growth rates of effective capital and effective labor (O49) | balanced growth (O40) |