This paper characterizes the elasticity of factor substitution in one-sector convex growth models with a general production function. It shows that an elasticity of substitution that is asymptotically greater than one is a sufficient (but not a necessary) condition for the existence of a lower bound on the marginal product of capital, which in turn can lead to unbounded endogenous growth. Hence, an elasticity of substitution that becomes eventually greater than one can counteract the role of diminishing returns to capital. This renders factor substitution a powerful engine of growth.
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Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number
2007_03.
Find related papers by JEL classification: O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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