Economic growth and economic development 699

Introduction to Modern Economic Growth If σ > 1/δ, then starting with NH (0) /NL (0) > (NH /NL )∗ , the economy tends to NH (t) /NL (t) → ∞ as t → ∞, and starting with NH (0) /NL (0) < (NH /NL )∗ , it tends to NH (t) /NL (t) → as t → ∞ ¤ Proof See Exercise 15.12 Of greater interest for our focus are the results on the direction of technological change Our first result on weak equilibrium bias immediately generalizes from the previous section: Proposition 15.8 Consider the directed technological change model with knowledge spillovers and state dependence in the innovation possibilities frontier Then there is always weak equilibrium (relative) bias in the sense that an increase in H/L always induces relatively H-biased technological change Ô Proof See Exercise 15.13 While the results regarding weak bias have not changed, inspection of (15.38) shows that it is now easier to obtain strong equilibrium (relative) bias Proposition 15.9 Consider the directed technological change model with knowledge spillovers and state dependence in the innovation possibilities frontier Then if σ > − δ, there is strong equilibrium (relative) bias in the sense that an increase in H/L raises the relative marginal product and the relative wage of the H factor compared to the L factor Intuitively, the additional increasing returns to scale coming from state dependence makes strong bias easier to obtain, because the induced technology effect is stronger When a particular factor, say H, becomes more abundant, this encourages an increase in NH relative to NL (in the case where σ > 1) However, from state dependence, this makes further increases in NH more profitable, thus has a larger 685