Endogenous Technical Progress Research Articles

How capital intensity affects technical progress: An empirical analysis for 17 advanced economies

AbstractIn this paper we present a model of economic growth with endogenous technical progress. We test if the neoclassical growth model accepts the assumption that capital intensity affects Total Factor Productivity (TFP) in the long run. Our view takes inspiration from Kaldor's growth model of 1957 in which theTechnical Progress Function(TPF) responds to the joint behavior of capital intensity and inventiveness. We find that “movements along a production function cannot be distinguished from shifts in this function” as formalized by the TPF. The model is tested using a Structural VAR for 17 advanced economies, over the period 1980–2020. On impact, when capital intensity improves, TFP increases sharply. This response is large and persistent over time and explains about half as much as of measured TFP. It confirms that capital intensity is an omitted variable in the traditional scheme used to estimate technical progress. Notably, the standard neoclassical growth model is not consistent with this evidence. Our analysis also shows that demand shocks can have permanent effects on output and unemployment. Finally, monetary policy helps to stabilize the business cycle, but loses its effectiveness in the long run.

Notes on economic development in a dual economy: the rise and fall of Brazilian manufacturing industry

Since the second half of 2010, the Brazilian economy is stagnant with negative consequences on productivity and employment growth. We will argue that the loss in economic dynamism is rooted in significant structural changes since the economic opening in the 1990s, resulting in fast deindustrialization and deterioration in the labour market. Our theoretical hypothesis is that of endogenous technical progress. Assuming that it is incorporated in the new machines and equipment, capital accumulation is the key variable to explain. Following early works by Kaldor and Kaldor Mirrlees, we assume that capital accumulation and the incorporation of technical progress are fundamental to promoting structural transformation. However, the presence of a dual labour market may impair the process. Also, as explained by the new developmentalist theory, financial integration of developing economies (a strategy to grow with external savings) in a hierarchial international monetary-financial system imply that real interest rates tend to be high, and the real exchange rate is appreciated, which does not induce accumulation in productive capital. In this case, the economy tends to specialize in its comparative advantages. Early deindustrialization deepens economic heterogeneity and operates as a barrier to increasing aggregate productivity. This is the case of Brazilian economy that failed to develop an endogenous core of technical progress during the fast industrialization process and did not succeed after economic opening either. Duality in the labour market and productivity heterogeneity have been deepened since the 1990s and the Brazilian economy is stagnant.

Growth, automation, and the long-run share of labor

We study the long run implications of workplace automation induced by capital accumulation. We describe a minimal set of sufficient conditions for sustained growth, along with a declining labor share of income in the long run: (i) a basic asymmetry between physical and human capital; (ii) the technical possibility of automation in each sector; (ii) a self-replication condition on the production function for robot services; (iv) asymptotic homotheticity (more generally neutrality) of demand, and (v) a minimal degree of patience or intergenerational altruism among a fraction of households. However, the displacement of human labor is gradual, and absolute real wages could rise indefinitely. The results obtain in the absence of any technical progress; they extend to endogenous technical progress even if such progress is not biased ex ante in favor of automation.

Quantifying the role of technical progress towards China’s 2030 carbon intensity target

This paper constructs a dynamic computable general equilibrium (DCGE) model to investigate the macroeconomic effects of endogenous technical progress in achieving China’s 2030 carbon intensity reduction target of 60–65% compared with 2005. We show that a combination of a carbon tax and technological progress can achieve the carbon intensity target in 2030, but it will exert a negative impact on economic growth. This negative effect, however, can be relieved by endogenously directed technological progress in the long term. In doing so, industrial structure and energy structure are dynamically adjusted by inhibiting the output and employment of the coal and oil sectors but promoting that of the clean energy and the service industry. We also find that with technological progress, the unit carbon abatement cost in the long term is estimated to be 200–250 yuan/ton, much lower than that in the short term (over 367 yuan/ton). Several policy implications are discussed accordingly.

Endogenous task-based technical change—factor scarcity and factor prices

This paper develops a static model of endogenous task-based technical progress to study how factor scarcity induces technological progress and changes in factor prices. The equilibrium technology is multi-dimensional and not strongly factor-saving in the sense of Acemoglu (2010). Nevertheless, labour scarcity induces labour productivity growth. There is a weak but no strong absolute equilibrium bias. This model provides a plausible interpretation of the famous contention of Hicks (1932) about the role of factor prices and factor endowments for induced innovations. It may serve as a microfoundation for canonical macro-economic models. Moreover, it accommodates features like endogenous factor supplies and a binding minimum wage.

Convergence in a neo-Kaleckian model with endogenous technical progress and autonomous demand growth*

This paper introduces technical progress along the lines of the Kaldor–Verdoorn law within a neo-Kaleckian model of growth and distribution that incorporates the Sraffian supermultiplier mechanism. The key features of the model include the interactive effects of endogenous technical progress, the non-capacity-creating demand component that grows at an exogenous rate and, in its long-run version, a Harrodian adjustment mechanism. It turns out that, whereas the model converges towards the normal rate of capacity utilization, the main tenets of the Keynesian model are still valid in the long run as well as in the short run in the sense that all of the average rates of accumulation, capacity utilization, and technical progress are lower during the traverse after the propensity to save or the share of profits goes up. The conditions under which the productivity regime can be wage-led are examined, and the possible effects of an exogenous technical shift are also discussed.

Global carbon reduction and economic growth under autonomous economies

The ecological and environmental issues caused by climate change have affected human health and social development. Accordingly, scientists have focused on addressing climate change. IAMs (Integrated Assessment Models) have been widely used to assess the effect of global climate governance. Since the US withdrew from the Paris Agreement and the UK broke away from the European Union, global economic development takes on an uncertain path. The worldwide trade war triggered by the US has shown that international trade may be weakened in the future. The deglobalization in global economic progress forces individual innovation within countries. Therefore, we constructed a new IAM under autonomous economies—EMRICES-E (Expanded Multi-Regional Integrated model of Climate and Economy System-Equilibrium), which contains a layered structure of national computable general equilibrium (CGE) model to describe an individual country’s development and analyzes the effects of global reductions in cooperation based on the new global situation. Considering that technical progress is a significant factor in carbon reduction, we introduced endogenous technical progress in CGE. Simulation results show that developing countries/regions have large carbon emissions under the baseline scenario with their economic status increasing at the same time, climate change would lead to economic recession if there are no carbon reductions for countries/regions and the industrial structure of developing countries changes noticeably compared with developed countries.

Modelling and forecasting world oil demand: a regional analysis accounting for asymmetric price responses and technical progress

AbstractThis study applies the structural time‐series modelling technique to investigate the relationship between aggregate oil consumption, income and prices across six regions of the world over the period 1970–2017. Following arguments in the energy economics literature on how to appropriately capture the impact of technical progress (TP) in modelling energy demand, this paper assumes a general model that incorporates asymmetric price responses (to capture endogenous TP) and an Underlying Energy Demand Trend (UEDT) (to capture exogenous TP and other factors) to estimate price and income elasticities for each region. These estimates are then used to produce future forecast scenarios of oil demand for each of the six world regions up to 2040 based on different assumptions about the future path of key variables that drive oil consumption. The results suggest that for the reference‐case scenario, global oil demand is projected to rise from 98 mb/d in 2017 to 118 mb/day in 2040 consisting of strong growth in the Middle East, Africa and Asia Pacific regions while oil consumption in North America, South/Central America and Europe/Eurasia regions is projected decline.

Convergence in a Neo-Kaleckian Model with Endogenous Technical Progress and Autonomous Demand Growth

This paper introduces technical progress along the lines of the Kaldor-Verdoorn law within a neo-Kaleckian model of growth and distribution that incorporates the Sraffian supermultiplier mechanism. The key features of the model include the interactive effects of endogenous technical progress, the non-capacity creating demand component that grows at an exogenous rate, and the Harrodian investment function. It turns out that, whereas the model converges towards the normal rate of capacity utilization, the main tenets of the Keynesian model are still valid in the long run as well as in the short run in the sense that all of the average rates of accumulation, capacity utilization and technical progress are lower during the traverse after the propensity to save or the share of profits goes up. The conditions under which the productivity regime can be wage-led are examined, and the possible effects of an exogenous technical shift are also discussed.

Economic factors affecting the registration of lower CO2 emitting aircraft in Europe

We examine the various forces influencing the development and uptake of environmentally beneficial technical changes, focusing on airline technology. Within this context, we consider not only the nature of competition within the final market in which aircraft, an intermediate product, are sold, but also that of the product market itself, the commercial airline industry. The reasons for the gradual reduction in CO2 per seat per aircraft movement in aircraft design are examined in terms of the real costs of aviation fuel, changes in the nature of the supply industry, the movement towards carbon cap-trade policies, and endogenous technical progress in the technology of the industry. The latter being taken as an empirical proxy for the role market forms play in influencing the fuel efficiency of the types of aircraft used. The results support the existence of these latter forces on the demand for aircraft types, allowing for other influences that affect aircraft technology.

A Kaldor-Hicks-Goodwin-Tobin-Kalecki model of growth and distribution

This paper presents a Kaldorian model of growth that incorporates both Kaldor's theory of income distribution and his endogenous technical progress function. Growth is driven by demand-side forces that induce supply-side accommodation. The model incorporates Hicksian induced innovation; Goodwin Marxist style labor conflict that affects wage bill division between workers and managers; Tobin inflation effects; and Kalecki monopoly power effects. Unlike the neo-Kaleckian model, a Kaldorian economy operates at normal capacity utilization. Monopoly power plays a role as a barrier to entry rather than determining the functional distribution of income.

Military spending, technical progress, and economic growth: a critical overview on mainstream defense economics

This article, which focuses on the macro-dynamic branches of defense economics, aims at showing that the mainstream literature – the neoclassical school or the methodologies closely related to it – devoted to the effects of military spending stumbles over worrying difficulties, by throwing light on its insuperable theoretical and empirical limitations. The authors’ criticism applies to: demand-side and supply-side models (first part); formalizations with technological spin-off effects, externalities or public goods (second part); and simulation models, including the most recent ones with endogenous technical progress growth models (third part).JEL Codes: H56, O31, O32, O47, P43

GROWTH, UNEMPLOYMENT AND ENDOGENOUS TECHNICAL PROGRESS: A HICKSIAN RESOLUTION OF HARROD'S KNIFE‐EDGE

ABSTRACTThis paper presents a neo‐Kaleckian growth model with unemployment, endogenous technical progress, and a steady‐state requirement of balanced labor demand and supply growth. There are two key innovations: first, a Marx–Hicks unemployment rate–profit rate channel affecting labor‐saving technical progress; second, a Keynesian unemployment rate channel affecting saving and investment. Changes in the unemployment rate change the profit rate, rebalancing effective labor supply and employment growth. This provides a Hicksian resolution of Harrod's knife‐edge. The Keynesian unemployment rate channel strengthens the growth benefits of a lower unemployment rate, potentially obviating any growth–unemployment trade‐off.

Liquidity Constraints, the Composition of Government Expenditure, and Economic Growth

This paper examines the impacts of liquidity constraints on economic growth and social welfare by incorporating the role of government expenditure into the overlapping-generations model developed by Jappelli and Pagano in 1990s. In our model, the government can provide funds to the young faced with liquidity constraints. Our theoretical findings are as follows: (1) with exogenous technical progress, liquidity constraints on households raise the saving rate; (2) with endogenous technical progress, liquidity constraints and economic growth rate show an inverted U-shaped relationship; (3) with both exogenous and endogenous technical progress, the steady state per capita income first increases and then declines with the increase of liquidity constraints. Our empirical analysis with cross-country data supported this conclusion; (4) given certain values of the model parameters, social welfare in steady state may decrease with the reduction of liquidity constraints.

Scarcity, regulation and endogenous technical progress

This paper studies to which extent a firm using a scarce resource input and facing environmental regulation can still manage to have a sustainable growth of output and profits. The firm has a vintage capital technology with two complementary factors, capital and a resource input subject to quota, the latter being increasingly scarce through an exogenously rising price. The firm can scrap obsolete capital and invest in adoptive and/or innovative R&D resource-saving activities. Within this realistic framework, we first characterize long-term growth regimes driven by scarcity (induced-innovation) vs. long-term growth regimes driven by quota regulation (Porter-like innovation). More importantly, we study the interaction between scarcity and quota regulation. In particular, we show that there exists a threshold level for the growth rate of the resource price above which the Porter mechanism is killed while the scarcity-induced growth regime may emerge. Symmetrically, we also find that there must exist a threshold value for the environmental quota under which the growth regime induced by scarcity vanishes while the Porter-like growth regime may survive.

Development of an Energy Economic Model with Endogenous Technical Progress and Feasibility Study of CCS Systems

The main objective of the research is to develop a bottom-up energy-economic model considering endogenous technical progress, and to analyze the potential of CCS introduction among Japan's electricity market in order to find out an optimum carbon reduction scenario into the future. On the basis of two-factor learning curve, both learning-by-doing and R&D functions drive technical progress in the model. The analysis is performed with a set of scenarios based on alternative assumptions for technical progress of carbon capture technologies: chemical absorption and physical absorption. As a result, technical progress decreases generation costs of power technologies with CCS systems resulting in the acceleration of additional CCS introduction. In addition, generation cost with chemical absorption notably decreases due to technical progress, and share of gas-fired power plant in total power generation increases. Thus, carbon emissions reduction reaches around 17% of total carbon emissions in 2050 under projected scenario, however, technical progress has little impact on total systems cost. Technical progress by learning-by-doing has a strong impact on CCS introduction than that of R&D. Moreover, unconsidered factors such as R&D effort in private sectors and spillover may push down possible carbon emissions as well.

COMPETITIVE INNOVATION WITH CODIFIED AND TACIT KNOWLEDGE*

ABSTRACTR&D‐based models of endogenous technical progress rest on a premise that technical progress is driven by profit‐seeking entrepreneurs. This literature led to a dominant view that endogenous technical advance is not consistent with perfect competition with constant returns to scale. Departing from this dominant perspective, we demonstrate that technical progress endogenously occurs in a perfectly competitive economy under constant returns to scale in rivalrous inputs. Our result is based on a hypothesis that R&D creates codified and tacit knowledge as joint products. Empirical and case studies are discussed to support the hypothesis. Using the model, we demonstrate that stronger patent protection can encourage or discourage R&D, depending on the size of an economy.

Social policies and R&D subsidies

PurposeThe paper seeks to analyse the impact of different public policies on inequality, unemployment, growth and the tax burden.Design/methodology/approachA dynamic general equilibrium model is built, in which growth is driven by endogenous technical progress, to analyse the impacts of several policies (minimum wage, redistribution and R&D subsidies financed by an income tax).FindingsAll policies except pure redistribution are better than non‐intervention in terms of growth. The authors distinguish three major policy patterns. The Anglo‐Saxon model is characterised by high growth, high inequality, low unemployment and a low tax burden. The Nordic model combines high growth, low inequality and low unemployment, and a high tax burden. The Continental European model puts together medium inequality and a medium tax burden, and higher long‐term growth is paid for by high unemployment.Research limitations/implicationsThe model could be extended by the introduction of educational policy.Originality/valueThe paper distinguishes three configurations that capture the main features of the developments in Anglo‐Saxon countries, Scandinavian countries, and Continental European countries in the 1990s. It thereby provides a general framework to analyse and compare these experiences.

THE LABOUR MARKET AND TECHNICAL CHANGE IN ENDOGENOUS CYCLES

ABSTRACTThe paper examines how a macro model, where there is an endogenous technical progress and strong interdependence between real and monetary aspects in both the labour and capital markets, can generate endogenous business cycles. This approach helps to understand the ambiguity of the NAIRU, the nature of the Phillips curve and the impact of labour productivity changes on the curve itself. Finally, the presence of expectation functions based upon a Markov‐switching time series process fosters endogenous dynamics and contributes to make asymmetries an important feature of the cycles.

WEAK AND STRONG SUSTAINABILITY, ENVIRONMENTAL CONSERVATION AND ECONOMIC GROWTH

ABSTRACT. To investigate the role of explicit and implicit assumptions in different models of weak and strong sustain‐ability, the Solow/Hartwick model of intergenerational equity with nonrenewable resources is gradually extended to include renewable resources, endogenous technical progress, and stock pollution. This reveals the fundamental role of endogenous technical progress for sustainable development, the inconsistency of implicit sustainability assumptions in various models, as well as the existence of a Hartwick rule for Daly's steady‐state economy. Moreover, it shows that the concepts of Solow sustainability and strong sustainability coincide as a special case of weak sustainability. The latter integrates economic and environmental concerns and aims at maintaining the welfare potential of an economy over time. It does not rule out economic growth by assumption. Rather, the analysis shows that environmental conservation and economic growth can be compatible with each other, without jeopardizing social welfare. Finally, the analysis shows that the discussion of sustain‐ability models cannot be restricted to the explicit differences that are usually pointed out by their authors and commentators. Rather, implicit assumptions must be made explicit.