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Biased Technical Change and Capital-Labour Substitution in Finland, 1902-2003

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Author Info

  • Jalava Jukka

    ()
    (Pellervo Economic Research Institute)

  • Pohjola Matti

    ()
    (Helsinki School of Economics)

  • Ripatti Antti

    ()
    (Bank of Finland)

  • Vilmunen Jouko

    ()
    (Bank of Finland)

Abstract

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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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 1 (April)
Pages: 1-20

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Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:8

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Cited by:
  1. Francesco Venturini, 2009. "The long-run impact of ICT," Empirical Economics, Springer, vol. 37(3), pages 497-515, December.
  2. Islam, Asif & López, Ramón, 2011. "Fiscal spending for economic growth in the presence of imperfect markets," CEPR Discussion Papers 8709, C.E.P.R. Discussion Papers.
  3. Juha Honkatukia, 2013. "The VATTAGE Regional Model VERM - A Dynamic, Regional, Applied General Equilibrium Model of the Finn," Research Reports 171, Government Institute for Economic Research Finland (VATT).
  4. Małgorzata Gawrycka & Aneta Sobiechowska-Ziegert & Anna Szymczak, 2012. "The Impact of Technological and Structural Changes in the National Economy on the Labour-Capital Relations," Contemporary Economics, University of Finance and Management in Warsaw, vol. 6(1), March.
  5. Sánchez, Marcelo, 2009. "National prices and wage setting in a currency union," Working Paper Series 1058, European Central Bank.
  6. Ricardo Mourinho Félix & Vanda Almeida, 2006. "Computing Potential Output and the Output Gap for the Portuguese Economy," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  7. Saara Tamminen & Tuomaala & Eljas, 2012. "Variation in price and substitution elasticities between sectors ? A microdata analysis," Working Papers 34, Government Institute for Economic Research Finland (VATT).

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