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Factor substitution and factor augmenting technical progress in the US - a normalized supply-side system approach

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Author Info
Rainer Klump () (Johann Wolfgang Goethe University)
Peter McAdam () (DG Research, European Central Bank)
Alpo Willman () (DG Research, European Central Bank)

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Abstract

Using a normalized CES function with factor-augmenting technical progress, we estimate a supply-side system of the US economy from 1953 to 1998. Avoiding potential estimation biases that have occurred in earlier studies and putting a high emphasis on the consistency of the data set, required by the estimated system, we obtain robust results not only for the aggregate elasticity of substitution but also for the parameters of labor and capital augmenting technical change. We find that the elasticity of substitution is significantly below unity and that the growth rates of technical progress show an asymmetrical pattern where the growth of laboraugmenting technical progress is exponential, while that of capital is hyperbolic or logarithmic.

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Paper provided by European Central Bank in its series Working Paper Series with number 367.

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Length: 61 pages
Date of creation: Jun 2004
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Handle: RePEc:ecb:ecbwps:20040367

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Related research
Keywords: Capital-Labor Substitution Technological Change Factor Shares Normalized CES function Supply-side system United States.

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
O51 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kaz Miyagiwa & Chris Papageorgiou, 2007. "Endogenous Aggregate Elasticity of Substitution," Emory Economics 0707, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
  2. Marianne Saam, 2005. "Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor," DEGIT Conference Papers c010_013, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  3. Elena Angelini & Antonello D‘Agostino & Peter McAdam, 2006. "The Italian block of the ESCB multi-country model," Working Paper Series 660, European Central Bank. [Downloadable!]
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