Optimum Technical Change in An Aggregative Model of Economic Growth

The role of capital accumulation has been prominent in most economic growth models, therefore, public investment has been set as a powerful policy tool to stimulate production. However, the effect on growth by different types of investment may differ; on the one hand, there is investment in machinery and equipment with a high degree of intrinsic technology and on the other, the rest of the investment consists mostly of structures and buildings. Although both should have an expansionary effect on economic activity, using data from Penn World Table 9.1 and through panel data models and Error Correction Vector models, it was found that Latin American countries should prioritize their investment in machinery and equipment because of its effect on growth, with the exception of Brazil, where the individual analysis didn’t allow a conclusion. The results also suggest that investment, beyond the type of good, should focus on being efficient, relevant and effective in promoting growth and development.