Question

Hicks Neutrality and Harrod Neutrality of Technological Progress.

23 Aug 2017
Answer :
Word Count : 686

Hicks Neutral Technical Progress:

The condition is that the tangent QE on the higher production function OP, must originate from the point Q to left of O, like the tangent before the technical change. In the figure, the tangent QE on the production function OP1originates from Q.

When both the tangents QE and QD on production functions OP and OP1originate from Q, only then the ratios between marginal product of labour and capital will be equal i.e. the ratio between the marginal product of labour and capital after the technical progress (OW1/u1) must be equal to the ratio between the marginal products of labour and capital before technical progress (OW/u)Therefore, the ratio between the marginal product of labour and capital is equal at points D and E on the vertical line KE.

This situation can be expressed as under:

Q = Q (t) f (K, L)

where Q — Total output

K — Inputs of capital

L — Inputs of labour

A (t) — Index of technical progress. It measures accumulated effects of shift overtime and is an increasing function of it.

Harrod’s View on Neutrality:

Prof. Harrod in his book “Towards a Dynamic Economics” has defined neutral technical progress in a different way. His definition is based on capital output ratio. According to him, neutral technical progress is one which leaves capital output ratio unchanged, provided that rate of profit remains constant. Thus, Harrod’s neutrality of technical progress requires the constancy of both the rate of profit r and capital output ratio K/Y.

If the rate of profit remains unchanged and the capital output ratio increases, the

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