Why doesn’t technological growth affect capital investment under the neoclassical growth theory? In the neoclassical growth equation, growth rate per capita is not affected by capital investment (only technological growth).
Does anyone know why this is the case? To me it makes intuitive sense that investment in capital would also make labor more productive.
Capital investment does affect the growth rate: it diminishes it (Law of Diminishing Marginal Utility). You stay on the same productivity curve, whose slope decreases as capital per worker increases.
Technological growth moves you to a higher productivity curve, whose slope is higher than that of the original curve.
Level of productivity and growth rate of productivity are not the same.
Yep, when a country is deep in capital (high capital to labor ratio), more investment in capital simply adds a little marginal productivity.
A simple example:
You are a whole country yourself and you have a laptop to produce / work. If you invest in another laptop, will your productivity or output double? It will probably boost 5%, not more.
However, what If you develop a new program that solves exercises easier for you, and also you develop a faster CPU to run that program? Technology has much more impact when you are deep in capital.