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on Economic Growth |
| By: | de la Fonteijne, Marcel R. |
| Abstract: | For several decades, it has been acknowledged that the conventional implementation of capital- and labor-augmenting technical progress within CES production functions gives rise to a fundamental paradox: either the production function must be Cobb-Douglas, or technical progress must be labor-augmenting only. Despite this inconsistency—commonly referred to as the “Cobb-Douglas or labor-augmenting-only paradox”—the approach remains widely used in modern growth models. In this paper, we revisit this theoretical issue through the lens of the Modern Universal Growth Theory (MUGT). MUGT rejects all existing formulations of neutral and non-neutral technical progress and offers a revised implementation that resolves the paradox. Within this framework, economic growth is represented as partially exogenous, through technical change, and partially endogenous, through capital accumulation. We derive explicit expressions to translate total factor productivity (TFP) into measurable output growth, establishing a coherent link between productivity dynamics and long-run economic performance. The central conclusion of MUGT is that no production function can yield a Balanced Growth Path (BGP) unless the capital-labor mix is explicitly adjusted over time. In this sense, MUGT exposes a structural limitation of all traditional growth models and provides a general framework to overcome it. A key contribution of this paper is the analysis of so-called Harrod-neutral (labor-augmenting) technical progress. We demonstrate that, despite its apparent simplicity, this approach implicitly requires a continuous adjustment of the capital-labor mix—a hidden mechanism that has remained largely unexamined. By revealing this adjustment, we not only explain the inner workings of Harrod's model, but also show that the same hidden mechanism exists across all combinations of capital- and labor-augmenting progress. This insight strengthens the case for adopting the MUGT as a consistent and transparent foundation for growth theory, in which each growth parameter has a clear, consistent, and economically meaningful interpretation. |
| Keywords: | Capital and Labor Augmented Technical Progress; Growth Model; Maximum Profit Condition; Production Functions; General Technical Progress; Capital-Labor-mix; Elasticity of Substitution; DSGE; Total Factor Productivity; Solow model; Hicks; Harrod; Modern Universal Growth Theory; MUGT |
| JEL: | E00 E20 E23 E24 |
| Date: | 2025–07–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125332 |
| By: | Torben Klarl |
| Abstract: | This paper investigates the impact of creativity on technological advancement, long-term economic development, and social welfare, with creativity endogenously determined through interactions within social networks. We demonstrate that an economy remains stagnant, exhibiting neither networking nor long-term growth, when the size of the creative class falls below a certain positive threshold. Conversely, surpassing this threshold triggers active networking between creative and non-creative individuals, fostering sustained technological progress and income growth. We calibrate the model and simulate the economy’s transition from stagnation to dynamic growth. Although immediate welfare gains from transitioning to a growing economy are modest, medium- to long-term welfare improvements become substantial due to the cumulative effects of technological advancement facilitated by networking. |
| Keywords: | Creativity, Population dynamics, Innovation, Technological evolution, Endogenous growth, Network, Welfare |
| JEL: | E13 E14 I30 O11 O31 O33 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:atv:wpaper:2504 |
| By: | Cantoni, Davide; Yuchtman, Noam |
| Abstract: | In 2024, Daron Acemoglu, Simon Johnson, and James A. Robinson (AJR) received the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. These three scholars were recognized “for studies of how institutions are formed and affect prosperity.” This paper reviews the contributions of these three scholars to our understanding of the institutional causes of historical and contemporary economic development. We place their work in the context of the intellectual history of the fields of economics and economic history: these authors pioneered the quantitative analysis of historical natural experiments to identify the causal effects of political institutions. We then discuss a less widely discussed contribution of their work: the identification of historically contingent causal effects. Historical contingency, we argue, is at the heart of AJR’s conceptual and empirical insights. These insights clarify transformative processes in historical development, including: (i) European colonialism; (ii) the Atlantic Trade; and, (iii) the French Revolution. More generally, they have implications for how we think about the path-dependence of political institutions and economic development: history has a long shadow, but that shadow shifts over time. |
| Keywords: | political institutions; economic development; natural experiments; historical contingency; critical junctures; Nobel Prize |
| JEL: | N00 B00 P00 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127989 |
| By: | Furse, Simon |
| Abstract: | This paper examines two literatures that try to understand the biophysical constraints placed on the economy and economic growth. Firstly, exergy economics uses the second law of thermodynamics to examine the aggregate exergy conversion process to the useful stage. This shows the dependency of the economy on physical laws and highlights the limits to continued productivity growth. I argue that exergy economics provides a vital contribution to economics, but previous attempts to integrate it into an economic framework are undermined by a reliance on the neoclassical production function. Secondly, ecological macroeconomics examines biophysical constraints to the economy using heterodox economic theory and models. My review of this literature shows that productivity growth is often modelled as unconnected to energy and materials and able to increase exponentially into the future despite biophysical constraints. The paper argues that biophysical limits to productivity growth need to be considered alongside the more commonly modelled damage functions and limits to resource availability and quality in ecological macroeconomics. |
| Keywords: | Exergy, Energy, Societal Exergy Analysis, Ecological Macroeconomics, Technical Change, Production Functions, Limits to Growth |
| JEL: | E12 O44 Q43 Q57 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:324638 |
| By: | Philipp Hohn; Torben Klarl |
| Abstract: | This paper suggests a micro-founded growth theory of human capital that incorporates three important ingredients: i) learning in a knowledge network, ii) possible skill-down-grading due to knowledge obsolescence, and, iii) fear of technological unemployment due to automation. Heterogeneous agents (optimally) split their time between learning-by-exchanging knowledge or working in the final goods sector. On the aggregate level, our benchmark model shows that learning and the degree of connectivity within the knowledge network directly impact the growth rate of the economy. Moreover, we show the existence of a poverty trap in which society stagnates due to an insufficient level of human capital that is in particular governed by the degree of knowledge obsolescence. In an extension, we control for the fact that learning is a cognitively demanding task associated with learning errors due to cognitive constraints. Therefore, two groups of agents are distinguished: Cognitively constrained and rational optimizers, where both can switch endogenously between a low and high-skilled state. We use this extension to numerically quantify the effects of cognitive constraints on human capital inequality. Inter alia, we show that a knowledge obsolescence shock has transitional as well as long-run negative effects on human capital inequality, where in relative terms, cognitively constrained agents are more affected than their rational counterparts. |
| Keywords: | Human capital, innovation, inequality, automation, knowledge network |
| JEL: | O11 O33 O40 E23 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:atv:wpaper:2503 |
| By: | Luisa Corrado; Stefano Grassi; Aldo Paolillo (Cambridge Judge Business School, University of Cambridge) |
| Abstract: | Recent studies suggest that space activities generate significant economic benefits. This paper attempts to quantify these effects by modelling both business cycle and long-run effects driven by space sector activities. We develop a model in which technologies are shaped by both a dedicated R&D sector and spillovers from space-sector innovations. Using U.S. data from the 1960s to the present day, we analyse patent grants to distinguish between space and core sector technologies. By leveraging the network of patent citations, we further examine the evolving dependence between space and core technologies over time. Our findings highlight the positive impact of the aerospace sector on technological innovation and economic growth, particularly during the 1960s and 1970s. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:jbs:wpaper:202502 |
| By: | Battaglia, Fabio; Fifi, Gianmarco |
| Abstract: | Whilst left-wing groups' increasing acceptance of fiscal austerity and anti-inflationary policies is well documented, less attention has been placed on their positions vis-à-vis the pursuit of economic growth, a key pillar of neoliberal ideology, and whether these ideas are affected during critical junctures. This article fills this gap by investigating the following questions: what are the stances of left-wing groups on the pursuit of economic growth, and do such positions persist or change in periods of economic crisis? The research focuses on Italy, a country where left-wing groups have long supported the ‘beyond GDP’ agenda and which was severely affected by the 2011 Eurozone crisis. It finds that left-wing groups see the pursuit of increasing economic growth as a prerequisite for well-being and social justice more generally. This, we argue, suggests that the endurance of the growth paradigm is primarily the result of widespread consensus rather than externally imposed constraints. |
| Keywords: | left; economic ideas; economic growth; beyond GDP; crises |
| JEL: | J1 N0 |
| Date: | 2025–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128737 |
| By: | Sarracino, Francesco; Slater, Giulia |
| Abstract: | Nearly one hundred years ago, John M. Keynes envisioned a future where material concerns would fade, allowing individuals to focus on leisure and well-being. Similar expectations were common in Keynes' days, when industrial progress promised to yield productivity gains, which would increase wages and lift workers out of poverty. Freed from material constraints, individuals would devote more attention to personal interests, relationships, and quality of life. One hundred years later, history proved that Keynes was right about economic growth, but individuals remain focused on material concerns at the expense of quality of life and of the environment. Why did economic activity deliver affluent, but socially and environmentally unsustainable societies? What possibilities are there for our future, the one of our grandchildren? In this article, we first review the evidence on the unsustainability of the current economic model. We discuss the role of economic growth for well-being, providing new evidence on defensive consumption, and illustrating a new explanation of unsustainability. We then discuss Neo-humanism, an evidence-based narrative to promote sustainable quality of life, ensures thriving lives in socially and environmentally sustainable societies. A shift towards sustainable quality of life is possible thanks to the insights from decades of research in this field. |
| Keywords: | neo-humanism, subjective well-being, post-growth, sustainability, social capital, quality of life, defensive growth, beyond GDP |
| JEL: | I00 I3 I31 O10 P0 Q50 |
| Date: | 2025–07–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125369 |
| By: | Gustaffsson, Johan; Prettner, Klaus; Xu, Fei |
| Abstract: | We explore the effects of anti-corruption policies on economic growth and welfare within an R&D-based economic growth framework. The government taxes households to fund infrastructure that can be used in the production of final goods and in R&D. Government officials can embezzle funds and use them for their own consumption purposes. However, this comes at the cost of potentially being detected and facing a corresponding punishment. While public officials endogenously decide on the level of corruption, the state decides on the extent of anti-corruption policies, how severe the punishment is, and the income tax level. We show that there is an interior welfare-maximizing level of the tax rate and of anti-corruption effort. The effect of anti- corruption policies on growth and welfare critically depends on the effectiveness of policies in increasing crime detection and the productivity of infrastructure. If the state decides to invest more in anti-corruption measures or increase the pecuniary punishment, economic growth and welfare may actually decrease. |
| Keywords: | Corruption; Fiscal Policy; Long-Run Economic Development; Infastructure; Welfare |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wus005:76354364 |