FACTOR SUBSTITUTION, MECHANIZATION, AND ECONOMIC GROWTH

This paper tries to explain the polarization of economic growth through mechanization. We derive a complementary relationship between capital accumulation and mechanization. While we assume an external effect that occurs as a result of mechanization, given the external effect, mechanization yields a constant-elasticity-of-substitution production function in which the elasticity-of-substitution is greater than unity as the envelope of Cobb-Douglas production functions. When mechanization is difficult, which implies a low value for the elasticity-of-substitution, and the external effect is weak, there is potential for multiple steady states to exist.