Jukka Jalava (Pellervo Economic Research Institute) Matti Pohjola (Helsinki School of Economics) Antti Ripatti (Bank of Finland) Jouko Vilmunen (Bank of Finland)
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The paper argues that a Cobb-Douglas specification may be a reasonable description of the Finnish aggregate production function when a sufficiently long time period (the 20th century) is considered. It is, however, a misleading description of the production technology for the post-WWII period. Controlling for biased technical change, the elasticity of substitution is significantly below one, close to 0.5, during 1945-2003. Given that similar results have been obtained for the U.S. economy, the analysis shows that the value of the elasticity of substitution cannot be dependent on some specific structure of economic institutions but is likely to reflect more general aspects of technology and production.
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Find related papers by JEL classification: O3 - Economic Development, Technological Change, and Growth - - Technological Change
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