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A Note on Balanced Growth with a less than unitary Elasticity of Substitution

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  • Miguel A. Leon-Ledesma

    ()

  • Mathan Satchi

    ()

Abstract

We present a simple production technology in which the choice of production technique results in a balanced growth path even in the presence of capital-augmenting technical progress. Given a particular choice of technique, the production function is CES with a less than unitary elasticity of factor substitution. The form of this production technology is also invariant to the choice of units, allowing us to abstract from the normalization considerations that often accompany the use of CES. The approach yields a balanced growth path but short-run time-varying factor shares without requiring an explicit model of the R&D sector.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/1007.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 1007.

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Date of creation: Aug 2010
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Handle: RePEc:ukc:ukcedp:1007

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Related research

Keywords: Balanced growth; capital-augmenting technical progress; measurement units; elasticity of substitution;

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References

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  1. Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2009. "Identifying the elasticity of substitution with biased technical change," Working Paper Series 1001, European Central Bank.
  2. Charles I. Jones & Dean Scrimgeour, 2008. "A New Proof of Uzawa's Steady-State Growth Theorem," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 180-182, February.
  3. Joseph Zeira, 1998. "Workers, Machines, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1091-1117, November.
  4. Hernando Zuleta, 2008. "Factor Saving Innovations and Factor Income Shares," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 836-851, October.
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Cited by:
  1. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 769-799, December.
  2. Cantore, Cristiano & Levine, Paul, 2011. "Getting Normalization Right: Dealing with ‘Dimensional Constants’ in Macroeconomics," Dynare Working Papers 9, CEPREMAP.

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