Technical Progress and Relative Stability of a Two-Sector Model of Economic Growth

Abstract

In the recent spurt on the two-sector, twofactor neoclassical growth models, the consequences of technical progress for relative stability have not been fully analyzed. The only studies that deal with this problem are those of Findlay [3], Takayama [5] and the present author [2]. In these papers it has been shown that technical progress leaves unchanged the conditions for the existence and the stability of the balanced growth defined by the constancy and the equality of the rates of growth of labor and capital only if (1) it occurs in the consumption-goods sector, and (2) it is Hicks or Harrod-neutral. Recognizing the limited significance of this result, Takayama goes a bit further and utilizes the concept of growth path, which he defines as one where capital stock grows faster than labor by a constant rate. He then shows that if (1) the consumption-goods sector is capital-intensive relative to the capital-goods sector, or (2) the elasticity of substitution in the capital-goods sector is at least equal to unity, the equilibrium growth path is stable even if technical progress occurs in the capital-goods sector, provided it is Harrod-neutral. The purpose of this paper is to derive sufficient conditions for the relative stability of the economic system in the presence of Hicks-technical progress, which may be neutral or non-neutral. To facilitate our analysis, we give a more general connotation to the equilibrium growth path by defining it as the path where the rate of growth of capital differs from the