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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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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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Cited by:
  1. 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, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) itemq0957, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  2. Deren Unalmis & Ibrahim Unalmis & D. Filiz Unsal, 2012. "On the Sources and Consequences of Oil Price Shocks," IMF Working Papers, International Monetary Fund 12/270, International Monetary Fund.
  3. Juha Kilponen & Matti Viren, 2010. "Why do growth rates differ? Evidence from cross-country data on private sector production," Empirica, Springer, Springer, vol. 37(3), pages 311-328, July.
  4. Cristiano Cantore & Filippo Ferroni & Miguel A. León-Ledesma, 2012. "The dynamics of hours worked and technology," Banco de Espa�a Working Papers, Banco de Espa�a 1238, Banco de Espa�a.
  5. Jang-Ting Guo & Kevin J. Lansing, 2008. "Capital-labor substitution, equilibrium indeterminacy, and the cyclical behavior of labor income," Working Paper Series, Federal Reserve Bank of San Francisco 2008-06, Federal Reserve Bank of San Francisco.
  6. Debdulal Mallick, 2012. "Education Briefing: The role of capital-labour substitution in economic growth," Indian Growth and Development Review, Emerald Group Publishing, Emerald Group Publishing, vol. 5(1), pages 89-101, April.
  7. Ligthart, J.E. & Meijden, G.C. van der, 2011. "The Dynamics of Revenue-Neutral Trade Liberalization," Discussion Paper, Tilburg University, Center for Economic Research 2011-142, Tilburg University, Center for Economic Research.
  8. 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.
  9. Hideki Nakamura, 2010. "Factor Substitution, Mechanization, And Economic Growth," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 61(2), pages 266-281.
  10. 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.
  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. Young, Andrew T., 2013. "U.S. Elasticities Of Substitution And Factor Augmentation At The Industry Level," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 17(04), pages 861-897, June.
  13. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2011. "The normalized CES production function: theory and empirics," Working Paper Series, European Central Bank 1294, European Central Bank.
  14. Deren Unalmis & Ibrahim Unalmis & Derya Filiz Unsal, 2012. "On Oil Price Shocks: The Role of Storage," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 60(4), pages 505-532, December.
  15. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin, 2013. "The decline of the U.S. labor share," Working Paper Series, Federal Reserve Bank of San Francisco 2013-27, Federal Reserve Bank of San Francisco.

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