Becker Friedman Institute

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Balanced Growth Despite Uzawa

The evidence for the United States points to balanced growth despite falling investment-good prices and an elasticity of substitution between capital and labor less than one. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa’s theorem to show that the introduction of human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if schooling is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for a variety of neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose the duration of their education matches key features of the U.S. economic record.

Authors: 
Gene Grossman, Princeton University
Elhanan Helpman, Harvard University and CIFAR
Ezra Oberfield, Princeton University
Publication Date: 
November, 2015
BFI Initiative: 
Publication Status: 
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