Abstract
This study emphasizes the necessity of the Harrod-neutral identification of technological progress for the models of economic growth, which use Cobb–Douglas production function and which are based on stability. Some of the important studies, which reviewed a balanced growth path or a steady state of the Solow model, assumed the nature of technological progress as Hicks-neutral rather than Harrod-neutral. In this work, we have reminded that Harrod-neutral is a better assumption for the nature of technological progress in such studies.
Highlights
Models of economic growth based on long-term equilibrium, which assumed the nature of technological progress as Hicksneutral cause the following contradiction: For the models of economic growth based on long-term equilibrium, if Hicksneutral technological change is assumed, the economy can never reach equilibrium; that is, long-term equilibrium cannot be established
Acikgoz and Mert (2014) further emphasized the importance of this assumption for time-series econometric analysis. This present study aims to emphasize that the nature of technological progress should be assumed rather than Harrod-neutral for mathematical models of economic growth, which are based on stability
Proposition 1: If it is assumed that the nature of technological progress is Hicks-neutral, the level of technology should be constant for stability; that is, the level of technology cannot change over time
Summary
Models of economic growth based on long-term equilibrium, which assumed the nature of technological progress as Hicksneutral cause the following contradiction: For the models of economic growth based on long-term equilibrium, if Hicksneutral technological change is assumed, the economy can never reach equilibrium; that is, long-term equilibrium cannot be established. This present study aims to emphasize that the nature of technological progress should be assumed rather than Harrod-neutral for mathematical models of economic growth, which are based on stability. Equation 7 gives the capital–labor ratio at the steady state, when the nature of technological progress is defined as the Hicks-neutral.
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