Economic growth and economic development 708

Introduction to Modern Economic Growth
induces endogenous changes in technology that are relatively biased towards that
factor. Consequently, any increase in the ratio of skilled to unskilled workers or in
the capital-labor ratio will have major implications about the relative productivity of these factors. The more surprising result is the strong equilibrium bias one,
which states that contrary to basic producer theory, (relative) demand curves can
slope up. In particular, if the elasticity of substitution between factors is sufficiently
high, a greater relative supply of a factor causes sufficiently strong induced technological change to make the resulting relative price of the more abundant factor
increase. In other words, the long run (endogenous-technology) relative demand
curve becomes upward-sloping. The possibility that relative demand curves may
be upward-sloping not only has a range of important empirical implications, but
also illustrates the strength of endogenous technological change models, since such
a result is not possible in the basic producer theory with exogenous technology.
The chapter has concluded with a number of applications of these ideas to a range
of empirically important areas. Models of directed technological change are very
much in their infancy and there are many theoretical dimensions in which further
developments are possible. Perhaps more importantly, there are also numerous
applications of these ideas.
Finally, this chapter has also been an important step in our investigation of the
causes of cross-country income differences and sources of modern economic growth.
Its main lesson for us is in clarifying the determinants of the nature of technological
progress. Technology should not be thought of as a black box, but the outcome of
decisions by firms, individuals and other agents in the economy. This implies that
profit incentives will play a major role in both the aggregate rate of technological
progress and also in the biases of the technologies that are being developed and
adopted. Models of directed technological change illustrate this reasoning in a sharp
way and show a range of its implications

15.9. References and Literature
Models of directed technological change were developed in Acemoglu (1998,
2002a, 2003a,b, 2007), Kiley (1999), and Acemoglu and Zilibotti (2001). These
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