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Elasticity of substitution and growth: normalized CES in the Diamond model

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  • Kaz Miyagiwa
  • Chris Papageorgiou

Abstract

It is often asserted that the more substitutable capital and labor are in the aggregate production the more rapidly an economy grows. Recently this has been formally confirmed within the Solow model by Klump and de La Grandville (2000). This paper demonstrates that there exists no such monotonic relationship between factor substitutability and growth in the Diamond overlapping-generations model. In particular, we prove that, if capital and labor are relatively substitutable, a country with a greater elasticity of substitution exhibits lower per capita output growth in transit and in steady state. Copyright Springer-Verlag Berlin Heidelberg 2003

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File URL: http://hdl.handle.net/10.1007/s00199-002-0268-9
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 21 (2003)
Issue (Month): 1 (01)
Pages: 155-165

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Handle: RePEc:spr:joecth:v:21:y:2003:i:1:p:155-165

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Related research

Keywords: Keywords and Phrases: CES; Diamond overlapping generations model; Economic growth.; JEL Classification Numbers: E13; E23; O40.;

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  1. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," CEPR Discussion Papers 1350, C.E.P.R. Discussion Papers.
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