New study shows how neoclassical models can align with real-world data.
The researchers developed a new version of a growth theorem that shows how economies can grow over time. They found that in a two-factor model, it's hard to match real-world data on technology and how workers and machines are used. But in a more complex model with multiple factors, it's possible to have balanced growth with technology that helps increase capital. This means that economic models can better match what we see in the real world. They also created a three-factor model that shows how technology can change and still lead to stable growth with more capital.