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ó: The Long And Short Of It

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  • Robert S. Chirinko

Abstract

Research on the elasticity of substitution between capital and labor - σ - has been proceeding for 75 years. While there is clearly a strong case for the importance of σ in the analysis of growth and other economic issues, much less agreement exists on the value of σ. This paper offers some perspectives on prior estimates of σ, emphasizing the fundamental tension between the short-run data that are available and the long-run parameter that is required. Estimates of σ based on various short-run and long-run models are discussed and, while the estimates range widely, the weight of the evidence suggests a value of σ in the range of 0.40 to 0.60. There is little evidence to sustain the assumption of a Cobb-Douglas production function.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2234.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2234

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Keywords: production; function; capital formation; economic growth; estimating long-run relations;

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References

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Citations

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Cited by:
  1. Dario Simon Judzik & Hector Sala Lorda, 2014. "The determinants of capital intensity in Japan and the U.S," Working Papers wpdea1404, Department of Applied Economics at Universitat Autonoma of Barcelona.
  2. Young, Andrew T., 2013. "U.S. Elasticities Of Substitution And Factor Augmentation At The Industry Level," Macroeconomic Dynamics, Cambridge University Press, vol. 17(04), pages 861-897, June.
  3. Kilponen, Juha & Viren, Matti, 2008. "Why do growth rates differ? Evidence from cross-country data on private sector production," Research Discussion Papers 13/2008, Bank of Finland.
  4. Debdulal Mallick, 2012. "Education Briefing: The role of capital-labour substitution in economic growth," Indian Growth and Development Review, Emerald Group Publishing, vol. 5(1), pages 89-101, April.
  5. Hideki Nakamura, 2010. "Factor Substitution, Mechanization, And Economic Growth," The Japanese Economic Review, Japanese Economic Association, vol. 61(2), pages 266-281.
  6. Jang-Ting Guo & Kevin J. Lansing, 2008. "Capital-Labor Substitution, Equilibrium Indeterminacy, and the Cyclical Behavior of Labor Income," Working Papers 200804, University of California at Riverside, Department of Economics, revised Apr 2008.
  7. Deren Unalmis & Ibrahim Unalmis & Derya Filiz Unsal, 2012. "On Oil Price Shocks: The Role of Storage," IMF Economic Review, Palgrave Macmillan, vol. 60(4), pages 505-532, December.
  8. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2011. "The normalized CES production function: theory and empirics," Working Paper Series 1294, European Central Bank.
  9. Jenny Ligthart & Gerard C. van der Meijdenz, 2011. "The Dynamics of Revenue-Neutral Trade Liberalization," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1124, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  10. Xi CHEN, 2012. "Estimation of the CES Production Function with Biased Technical Change: A Control Function Approach," Working Papers of BETA 2012-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  11. David I. Stern & Astrid Kander, 2011. "The Role of Energy in the Industrial Revolution and Modern Economic Growth," CAMA Working Papers 2011-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  12. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin, 2013. "The decline of the U.S. labor share," Working Paper Series 2013-27, Federal Reserve Bank of San Francisco.
  13. Deren Unalmis & Ibrahim Unalmis & D. Filiz Unsal, 2012. "On the Sources and Consequences of Oil Price Shocks," IMF Working Papers 12/270, International Monetary Fund.
  14. Luciano Boggio & Vincenzo Dall'Aglio & Marco Magnani, 2009. "On Labour Shares in Recent Decades: A Survey," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq0957, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  15. Cristiano Cantore & Filippo Ferroni & Miguel A. León-Ledesma, 2012. "The dynamics of hours worked and technology," Banco de Espa�a Working Papers 1238, Banco de Espa�a.

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