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Economic Growth Lecture 12 2023
Economic Growth Lecture 12 2023
Daron Acemoglu
MIT
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 1 / 56
Directed Technological Change Introduction
Introduction
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 2 / 56
Directed Technological Change Introduction
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 3 / 56
Directed Technological Change Introduction
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 4 / 56
Directed Technological Change Introduction
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 5 / 56
Directed Technological Change Introduction
Skill premium
Relative supply
ω’ of skills
ω Relative demand
for skills
H/L
A (H/L)
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 7 / 56
Directed Technological Change Introduction
Equilibrium Bias
dMPH /MPL
> 0,
dH/L
The major di¤erence is whether the relative marginal product of the
two factors are evaluated at the initial relative supplies (weak bias) or
at the new relative supplies (strong bias).
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 8 / 56
Directed Technological Change Baseline Model of Directed Technical Change
C (t ) + X (t ) + Z (t ) Y (t ) , (3)
and Z N H (t )
1
YH (t ) = xH (ν, t )1 β
d ν H β, (5)
1 β 0
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 10 / 56
Directed Technological Change Baseline Model of Directed Technical Change
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 11 / 56
Directed Technological Change Baseline Model of Directed Technical Change
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 13 / 56
Directed Technological Change Characterization of Equilibrium
Equilibrium I
max p L ( t ) YL ( t ) wL (t ) L (10)
L,[xL (ν,t )]ν2[0,N
L (t ) ]
Z N L (t )
pLx (ν, t ) xL (ν, t ) d ν,
0
and
max p H ( t ) YH ( t ) wH (t ) H (11)
H ,[xH (ν,t )]ν2[0,N
H (t ) ]
Z N H (t )
pHx (ν, t ) xH (ν, t ) d ν.
0
Equilibrium II
and
1/β
pH ( t )
xH (ν, t ) = H for all ν 2 [0, NH (t )] and all t. (13)
pHx (ν, t )
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 15 / 56
Directed Technological Change Characterization of Equilibrium
Equilibrium III
and
xH (ν, t ) = pH (t )1/β H for all ν and all t.
Since these quantities do not depend on the identity of the machine
pro…ts are also independent of the machine type:
Thus the values of monopolists only depend on which sector they are,
VL (t ) and VH (t ).
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 16 / 56
Directed Technological Change Characterization of Equilibrium
Equilibrium IV
Combining these with (4) and (5), derived production functions for
the two intermediate goods:
1 1 β
YL ( t ) = pL ( t ) β NL ( t ) L (15)
1 β
and
1 1 β
YH ( t ) = pH ( t ) β NH (t ) H. (16)
1 β
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 17 / 56
Directed Technological Change Characterization of Equilibrium
Equilibrium V
σ (ε
ε 1) (1 β)
= 1 + (ε 1) β.
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 18 / 56
Directed Technological Change Characterization of Equilibrium
Equilibrium VI
wH (t )
ω (t )
wL (t )
NH ( t )
= p (t )1/β
NL ( t )
σ 1 1
ε NH ( t ) σ H σ
= γ σ . (18)
NL (t ) L
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 19 / 56
Directed Technological Change Characterization of Equilibrium
Equilibrium VII
and
η H VH ( t ) 1 and η H VH (t ) = 1 if ZH (t ) > 0. (20)
Consumer side:
Ċ (t ) 1
= (r (t ) ρ) , (21)
C (t ) θ
and
Z t
lim exp r (s ) ds (NL (t ) VL (t ) + NH (t ) VH (t )) = 0,
t !∞ 0
(22)
where NL (t ) VL (t ) + NH (t ) VH (t ) is the total value of corporate
assets in this economy.
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 20 / 56
Directed Technological Change Characterization of Equilibrium
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 21 / 56
Directed Technological Change Characterization of Equilibrium
Next, using the two free entry conditions (19) and (20) as equalities,
we obtain the following BGP “technology market clearing” condition:
η L VL = η H VH . (25)
where η η H /η L .
Note that relative productivities are determined by the innovation
possibilities frontier and the relative supply of the two factors. In this
sense, this model totally endogenizes technology.
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 23 / 56
Directed Technological Change Characterization of Equilibrium
1 h i σ1 1
1 1
g = ε
β γH (η H H )σ + γLε (η L L)σ ρ . (28)
θ
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 24 / 56
Directed Technological Change Transitional Dynamics
Transitional Dynamics
Summary: the dynamic equilibrium path always tends to the BGP and
during transitional dynamics, there is only one type of innovation.
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 25 / 56
Directed Technological Change Directed Technological Change and Factor Prices
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 26 / 56
Directed Technological Change Directed Technological Change and Factor Prices
The results re‡ect the strength of the market size e¤ect: it always
dominates the price e¤ect.
But it does not specify whether this induced e¤ect will be strong
enough to make the endogenous-technology relative demand curve for
factors upward-sloping.
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 27 / 56
Directed Technological Change Directed Technological Change and Factor Prices
Substitute for (NH /NL ) from (26) into the expression for the
relative wage given technologies, (18), and obtain:
σ 2
wH 1 ε H
ω = ησ γ . (29)
wL L
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 28 / 56
Directed Technological Change Directed Technological Change and Factor Prices
Skill premium
ET2--endogenous
technology demand
ET1--endogenous
technology
demand
CT--constant
technology
demand
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 29 / 56
Directed Technological Change Directed Technological Change and Factor Prices
Discussion
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Directed Technological Change Implications
Implications I
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Directed Technological Change Implications
Implications II
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Directed Technological Change Implications
Implications III
Skill premium
Short-run
Response
Exogenous Shift in
Relative Supply
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Directed Technological Change Implications
Implications IV
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 34 / 56
Directed Technological Change Implications
Implications V
Skill premium
Initial premium
Long-run relative
Long-run premium demand for skills
Short-run
Response
Exogenous Shift in
Relative Supply
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 35 / 56
Directed Technological Change Implications
Implications VI
Other remarks:
Upward-sloping relative demand curves arise only when σ > 2. Most
estimates put the elasticity of substitution between 1.4 and 2. One
would like to understand whether σ > 2 is a feature of the speci…c
model discussed here
Results on induced technological change are not an artifact of the scale
e¤ect (exactly the same results apply when scale e¤ects are removed,
see below).
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 36 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
where δ 1.
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 37 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
SL ( t ) + SH ( t ) S. (31)
and
η H NL (t )(1 δ)/2
NH (t )(1 +δ)/2 VH (t ) wS (t ) (33)
(1 δ)/2 (1 +δ)/2
and η H NL (t ) NH (t ) VH (t ) = wS (t ) if SH (t ) > 0,
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 39 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
η L NL (t )δ π L = η H NH (t )δ π H , (34)
Combine condition (34) with equations (14) and (17), to obtain the
equilibrium relative technology as:
σ 1
NH σ ε H 1 δσ
=η 1 δσ γ 1 δσ , (35)
NL L
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 40 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 41 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 42 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 43 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 44 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
σ>2 δ,
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 45 / 56
Directed Technological Change Directed Technological Change with Knowledge Spillovers
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 46 / 56
Directed Technological Change Evidence
Evidence
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 48 / 56
Directed Technological Change Evidence
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 49 / 56
Directed Technological Change Evidence
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Directed Technological Change Endogenous Labor-Augmenting Technological Change
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 52 / 56
Directed Technological Change Endogenous Labor-Augmenting Technological Change
Alternative Approach
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 55 / 56
Directed Technological Change Conclusions
Conclusions
Daron Acemoglu (MIT) Economic Growth Lecture 12 December 7 and 12, 2023 56 / 56