ABSTRACT
This chapter explores the implications of economic expansion for output levels, real factor rewards and welfare for a single small country, on the assumption that the economy is characterised by a factor price differential. The differential is assumed to exist in the labour market while the capital market is assumed to be non-distorted. Economic expansion can occur from various sources. The concept of technical progress is generally introduced via the production function. The chapter discusses the Hicks-neutral technical progress. This is defined as an increase in the marginal product of both inputs in the same proportion at the original equilibrium factor price ratio. Biased technical progress can be defined quite easily from the above definition of neutrality. For instance, if at the original factor price ratio, technical progress raises the marginal product of capital more than that of labour, then technical progress is defined as capital-using or labour-saving.
