Generalized Solow-Neutral Technical Progress and Postwar Economic Growth

Abstract

Using revised, updated, and consistent annual post-World War II data from the G-7 countries developed by us, we econometrically estimate and test alternative explanations of the structure of economic growth in a model with three inputs tangible capital, labor, and human capital which permits the identification of the magnitudes of and biases in both returns to scale and technical progress. We find: 1. Technical progress is simultaneously purely tangible capital and human capital augmenting, that is, generalized Solow-neutral.' This finding provides an alternative explanation of the slow pace of convergence in real GDP per capita: the benefits from technical progress depend directly on the levels of tangible and human capital; countries with higher levels of capital realize higher rates of technical progress.2. Technical progress has been capital, not labor, saving and thus is not a cause of systemic structural unemployment. 3. Technical progress accounts for more than 50 percent of the economic growth of the G-7 countries except Canada. Tangible capital input is next most important; together with technical progress, they account for three quarters or more of the growth of real output in the G-7 countries, except Canada. 4. The most important source of the growth slowdown since the mid-1970's decline in the rate of capital (both tangible and human)-augmenting technical progress.