The elasticity of substitution as an engine of growth
AbstractThis 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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Bibliographic InfoPaper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2007_03.
Date of creation: Dec 2007
Date of revision: Dec 2007
Elasticity of Substitution; Endogenous Growth; Convex Models;
Other versions of this item:
- Palivos, Theodore & Karagiannis, Giannis, 2010. "The Elasticity Of Substitution As An Engine Of Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 14(05), pages 617-628, November.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-12 (All new papers)
- NEP-DEV-2008-01-12 (Development)
- NEP-DGE-2008-01-12 (Dynamic General Equilibrium)
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- Xue, Jianpo & Yip, Chong K., 2012. "Factor Substitution And Economic Growth: A Unified Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 16(04), pages 625-656, September.
- Hideki Nakamura, 2010. "Factor Substitution, Mechanization, And Economic Growth," The Japanese Economic Review, Japanese Economic Association, vol. 61(2), pages 266-281.
- 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.
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