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CES Production Functions and Economic Growth

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Author Info
Klump, Rainer
Preissler, Harald
Abstract

We examine inconsistencies and controversies related to the use of CES production functions in growth models. First, we show that not all variants of CES functions commonly used are consistently specified. Second, using a simple growth model, we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more probable. It is also pointed out that the effect of a higher elasticity of substitution on the speed of convergence depends on the relative scarcity of the factors of production. Finally, we discuss possible explanations of variations in the elasticity of substitution. Copyright 2000 by The editors of the Scandinavian Journal of Economics.

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Article provided by Blackwell Publishing in its journal Scandinavian Journal of Economics.

Volume (Year): 102 (2000)
Issue (Month): 1 (March)
Pages: 41-56
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Handle: RePEc:bla:scandj:v:102:y:2000:i:1:p:41-56

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  1. Chris Papageorgiou & Kaz Miyagiwa, . "The Elasticity of Substitution, Hicks' Conjectures, and Economic Growth," Departmental Working Papers 2003-08, Department of Economics, Louisiana State University. [Downloadable!]
  2. Kaz Miyagiwa & Chris Papageorgiou, 2007. "Endogenous Aggregate Elasticity of Substitution," Emory Economics 0707, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  3. Rainer Klump & Peter McAdam & Alpo Willman, 2004. "Factor substitution and factor augmenting technical progress in the US - a normalized supply-side system approach," Working Paper Series 367, European Central Bank. [Downloadable!]
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  4. Robert S. Chirinko, 2008. "ó: The Long And Short Of It," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. George W. Hammond & Eric Thompson, 2006. "Determinants of Income Growth in U.S. Metropolitan and Non-metropolitan Labor Markets."," Working Papers 06-12, Department of Economics, West Virginia University. [Downloadable!]
  6. Juergen Antony, 2007. "A Dual Elasticity of Substitution Production Function with an Application to Cross Country Inequality," Discussion Paper Series 294, Universitaet Augsburg, Institute for Economics. [Downloadable!]
  7. Rainer Klump, 2003. "Inflation, factor substitution and growth," Working Paper Series 280, European Central Bank. [Downloadable!]
  8. Philip Marey & Arnaud Dupuy, 2004. "Shifts and Twists in the Relative Productivity of Skilled Labor: Reconciling Accelerated SBTC with the Productivity Slowdown," Econometric Society 2004 North American Summer Meetings 118, Econometric Society. [Downloadable!]
  9. Robert Chirinko, 2002. "Corporate Taxation, Capital Formation, and the Substitution Elasticity between Labor and Capital," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  10. Jakub, GROWIEC & Ingmar, SCHUMACHER, 2006. "On Technical Change in the Elasticities of Resource Inputs," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2006031, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  11. Stephen J. Turnovsky & Santanu Chatterjee, 2004. "Tied Versus Untied Foreign Aid: Consequences for a Growing Economy," Computing in Economics and Finance 2004 8, Society for Computational Economics. [Downloadable!]
  12. Marianne Saam, 2005. "Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor," DEGIT Conference Papers c010_013, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  13. Arnaud Dupuy & Philip S. Marey, 2007. "Shifts and Twists in the Relative Productivity of Skilled Labor," IZA Discussion Papers 2694, Institute for the Study of Labor (IZA). [Downloadable!]
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  14. Robert S. Chirinko & Steven M. Fazzari & Andrew P. Meyer, 2002. "That Elusive Elasticity: A Long-Panel Approach To Estimating The Price Sensitivity Of Business Capital," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B3-1, International Conferences on Panel Data. [Downloadable!]
  15. Rainer Klump & Olivier de La Grandville, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March. [Downloadable!] (restricted)
  16. Jonathan Temple, 2002. "The Costs of Dualism," Bristol Economics Discussion Papers 02/532, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  17. Philippe Jeanfils & Koen Burggraeve, 2005. "Noname \u2013 A new quarterly model for Belgium," Research series 200505-2, National Bank of Belgium. [Downloadable!]
  18. Jang-Ting Guo & Kevin J. Lansing, 2008. "Capital-labor substitution, equilibrium indeterminacy, and the cyclical behavior of labor income," Working Paper Series 2008-06, Federal Reserve Bank of San Francisco. [Downloadable!]
  19. Theodore Palivos & Giannis Karagiannis, 2007. "The elasticity of substitution as an engine of growth," Discussion Paper Series 2007_03, Department of Economics, University of Macedonia, revised Dec 2007. [Downloadable!]
  20. Arnab Bhattacharjee & Eduardo de Castro & (Late) Chris Jensen-Butler, 2007. " Evaluating Economic Theories of Growth and Inequality: A Study of the Danish Economy," CDMA Working Paper Series 0723, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  21. Rainer Klump, 2001. "Trade, money and employment in intertemporal optimizing models of growth," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 10(4), pages 411-428, December. [Downloadable!] (restricted)
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