Economic Growth with Mechanization of the Production Process

Abstract

This paper considers endogenous technological changes of inputs from labor to capital in operations of a production process, i.e., a kind of mechanization of the production process. While retaining the property of decreasing returns in capital, we can show that because of complementary relationships between the accumulation of capital and the mechanization of the production process, long-run growth is possible through the accumulation of capital only. It involves no growth of total factor productivity. Furthermore, our model can partly present a micro-foundation of constant-elasticity-of-substitution production function. Investigating our model empirically, we confirm both technological progress and our technological change.Capital Accumulation, Mechanization of a Production Process, Total Factor Productivity, Envelope, Elasticity of Substitution