Technological condition for balanced growth: A criticism and restatement

According to prevailing opinion, only the neutral form of technological progress in the Harrod sense is consistent with balanced growth in a one-sector constant returns-to-scale economy. Though various definitions of balanced growth are in use in the literature, the above highly restrictive technological condition is believed to hold for all of them. The paper demonstrates that this belief is not correct. The condition is shown to be false if the definition of balanced growth (i) does not require the constancy of the marginal product of capital (or the interest rate), and (ii) permits the time semiinfinite or indeed any finite balanced growth path. More specifically, under (i) and (ii) there exists a balanced growth path consistent with a significantly wide class of technological changes of the capital-using (labour-saving) form in the Harrod sense. Alternatively, this condition is correct if either (i) the interest rate is required to be constant or (ii) growth is balanced if it is such for all time—that is, for both past and future. The condition is also correct if the socioeconomic institutions are such that the constancy of the savings ratio implies the constancy of the capital share.