Toward empirical applications of lie-group technical progress functions

Abstract

While many empirical studies compute a ‘rate of technical progress’, to be distinguished from scale effects, in the analysis of output (or cost) growth over a period of time, there have been few attempts to model the rate of technical progress. What few attempts there have been are based on simple-minded types of technical progress, namely the factor augmenting types, which present severe problems for distinguishing scale- and technical progress-effects. Sato's (1980, 1981) application of Lie-group theory to economics has opened the empirical analysis of technical progress to new types of technical progress with a foundation in theory. The purposes of this paper are to provide a brief, but sufficient, survey of Lie-group theory, and then identify some new types of technical progress which are feasible for incorporation into standard models of production (or cost) and technical progress.