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A microfoundation for normalized CES production functions with factor-augmenting technical change

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  • Growiec, Jakub

Abstract

Based on a tractable “endogeneous technology choice” framework, we provide a microfoundation for aggregate normalized constant elasticity of substitution (CES) production functions with non-neutral, factor-augmenting technical change. In this framework, firms are allowed to choose unit productivities of capital and labor optimally from a technology menu constructed under the assumption that unit factor productivities (UFPs) are independently Weibull-distributed. The Weibull distribution itself is also microfounded here: based on extreme value theory, it is found to be an accurate and robust approximation of the true UFP distribution if technologies consist of a large number of complementary components.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 2336-2350

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:11:p:2336-2350

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: CES production function; Weibull distribution; Optimal technology choice; Direction of technical change; Directed R&D;

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References

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  1. de La Grandville, Olivier, 1989. "In Quest of the Slutsky Diamond," American Economic Review, American Economic Association, vol. 79(3), pages 468-81, June.
  2. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  3. Growiec, Jakub, 2006. "A New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change," MPRA Paper 7069, University Library of Munich, Germany.
  4. Jakub Growiec, 2007. "Beyond the Linearity Critique: The Knife-edge Assumption of Steady-state Growth," Economic Theory, Springer, vol. 31(3), pages 489-499, June.
  5. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  6. Klump, Rainer & Preissler, Harald, 2000. " CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
  7. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
  8. Olivier de La Grandville & Rainer Klump, 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.
  9. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  10. Nakamura, Hideki, 2009. "Micro-foundation for a constant elasticity of substitution production function through mechanization," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 464-472, September.
  11. Jakub Growiec, 2012. "Factor-Augmenting Technology Choice and Monopolistic Competition," DEGIT Conference Papers c017_038, DEGIT, Dynamics, Economic Growth, and International Trade.
  12. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, 06.
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  16. Francesco Caselli & Wilbur John Coleman II, 2000. "The World Technology Frontier," NBER Working Papers 7904, National Bureau of Economic Research, Inc.
  17. 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.
  18. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  19. Growiec, Jakub, 2008. "Production functions and distributions of unit factor productivities: Uncovering the link," Economics Letters, Elsevier, vol. 101(1), pages 87-90, October.
  20. Miguel A. Le�n-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-57, September.
  21. Miguel A. Leon-Ledesma & Mathan Satchi, 2011. "The Choice of CES Production Techniques and Balanced Growth," Studies in Economics 1113, Department of Economics, University of Kent.
  22. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2011. "The normalized CES production function: theory and empirics," Working Paper Series 1294, European Central Bank.
  23. de La Grandville, Olivier, 1989. "Erratum [In Quest of the Slutsky Diamond]," American Economic Review, American Economic Association, vol. 79(5), pages 1307, December.
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Cited by:
  1. Jakub Growiec, 2012. "Factor-augmenting technology choice and monopolistic competition," National Bank of Poland Working Papers 129, National Bank of Poland, Economic Institute.
  2. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 769-799, December.

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