chapter  III
Simultaneity in Freely Estimated Production Functions
Pages 24

The neoclassical theory of productivity growth, developed by Robert Solow and others, assumes a constant returns to scale production function in which technological change is independent of the inputs. 1 Some of the conclusions about long-run growth generated by this theory-that growth rates of output per worker across different countries should converge and that large differences in capital per worker across countries should result in large differences in rates of return and thus in large capital flows-appear inconsistent with empirical fact. More fundamentally, the basic assumptions of the theory mentioned above-----constant returns to scale and the exogeneity of technological growth with respect to the inputs-have recently come under attack.