INTERMEDIATE PRODUCTS, AGGREGATION, AND ECONOMIC GROWTH.

This paper intends to examine the role of intermediate products in a neoclassical model of economic growth. It introduces a pure intermediate good as a third sector in addition to the usual two-sector model involving a consumption good and an investment good. The pure intermediate goods are produced by capital and labor and are used as, in addition to capital and labor, another factor of production in the final goods sectors. I shall allow intermediate goods to be used in variable proportions; namely, it can be complementary or competitive to the other two factors of production. Thus, the paper can be viewed as dealing with a three-sector, three-factor model of economic growth.
This paper has introduced intermediate products into a neoclassical model of economic growth. The model consists of three sectors in which one sector produces a pure intermediate good. The intermediate goods are allowed to be used in variable proportions in the two final goods sectors. With a general Kaldorian savings function, the paper has examined the role of intermediate products in determining the growth equilibrium.
As we have shown, the total sectoral elasticities of factor substitution in general depend upon Allen's partial elasticities of factor substitution. However, in the special case where intermediate goods are used in a fixed proportion in a final goods sector, the total sectoral elasticity of factor substitution is shown to be a linear combination of the Hicksian elasticities of factor substitution in that sector and in the intermediate-goods sector. The aggregation which yields a total sectoral unit isoquant is diagrammatically demonstrated in the paper. [ABSTRACT FROM AUTHOR]