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Economic growth theory distinguishes between reproducible and nonreproducible factors of production. In traditional growth models based on factor-augmenting technical change, perpetual economic growth requires that each essential nonreproducible factor, such as labor, be augmented by a reproducible factor, such as human capital. Recent models of factor-eliminating technical change deliver perpetual growth by eliminating the nonreproducible factors. Heretofore, the literature has kept factor augmentation and factor elimination separate. We analyze a model with both. The model generalizes the traditional factor augmentation approach by relaxing the usual restriction that factor elimination is absent. We obtain the striking result that factor-augmenting technical change is a misspecification when factor-eliminating technical change is present. The result raises several questions about technical change and endogenous growth. (JEL O41, O31, O33), I. INTRODUCTION In this paper, we study the interaction of factor-augmenting and factor-eliminating technical progress and their effects on economic growth. Factor-augmenting progress is an old and familiar concept. It [...]

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To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0084.2009.00565.x Byline: Joseph P. Dejuan ([dagger]), John J. Seater ([double dagger]), Tony S. Wirjanto ([dagger]) Keywords: E20; E21; R10 Abstract: Abstract This paper utilizes relatively unexplored Canadian provincial-level data to investigate an old but still relevant question in macroeconomics as to whether consumption responds to income innovations in a manner consistent with the stochastic implications of the permanent income hypothesis (PIH). The empirical results obtained do not appear to be in accord with the PIH. Instead, consumption's response to income innovations is found to be much weaker than that predicted by PIH; in particular, the response displays an asymmetric pattern in the sense that it is much stronger for negative than positive income innovations. We interpret this evidence of asymmetry as indicative of the presence of liquidity constraints in provincial households. Author Affiliation: ([dagger])Department of Economics, University of Waterloo, Waterloo, ON, Canada (e-mail:jdejuan@uwaterloo.ca,twirjant@uwaterloo.ca) ([double dagger])Department of Economics, North Carolina State University, Raleigh, NC, USA (e-mail:John_seater@ncsu.edu) Article History: Final Manuscript Received: June 2009

A study was conducted to examine the Permanent Income Hypothesis (PIH) with Kormendi and LaHaye's proposed cross-country test. A sample of 87 countries, whose economies are not centrally planned and have a 'C' rating for their national accounts data, were studied based on real private consumption, real government consumption, real gross domestic product and population. Data obtained from developing countries do not support PIH while data from industrial countries support PIH., 1. Introduction An implication of the rational expectations-permanent income hypothesis (RE-PIH) is that an income innovation causes the same size revision in consumption as in permanent income; that is, the [...]

We study the interaction between endogenous growth and Ricardian trade working solely through comparative advantage. The model is built on several facts about research and development and trade. Trade and growth affect each other in ways previously unexplored. The model can explain and reconcile in a single framework several phenomena usually analyzed separately. Because of a possible dynamic inefficiency, trade may raise or lower the growth rate of each trading partner. Trade leads to "effective technology transfer," with the growth rate looking as if a country adopts its partner's technology even though it does not. Economic growth can endogenously change the trading regime from incomplete to complete specialization (the Ricardian corner and interior, respectively), which can explain why trade helps some countries catch up but leaves others behind. Trade may raise or lower social welfare. The model specifies the conditions under which each possible outcome occurs. We examine a few of the model's many testable implications and find them in agreement with the data. [ABSTRACT FROM AUTHOR]