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Variable elasticity of substitution and economic growth in the neoclassical model

Author

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  • Gómez Manuel A.

    (Departamento de Economía, Universidade da Coruña, Campus de A Coruña, A Coruña, 15071, Spain)

Abstract

We study the effect of factor substitutability in the neoclassical growth model with variable elasticity of substitution. We consider two otherwise identical economies differing uniquely in their initial factor substitutability with Variable-Elasticity-of-Substitution (VES), Sobelow or Sigmoidal technologies. If the initial capital per capita is below its steady-state value, the economy with the higher initial elasticity of substitution will feature a higher steady-state income and capital per capita irrespective of whether the production technology is VES, Sobelow or Sigmoidal. Numerical results are provided to compare the effect of a higher elasticity of substitution in the Constant-Elasticity-of-Substitution (CES) model versus the models with variable-elasticity-of-substitution technology.

Suggested Citation

  • Gómez Manuel A., 2021. "Variable elasticity of substitution and economic growth in the neoclassical model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(5), pages 345-364, December.
    • Handle: RePEc:bpj:sndecm:v:25:y:2021:i:5:p:345-364:n:6
    DOI: 10.1515/snde-2019-0145
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    More about this item

    Keywords

    economic growth; elasticity of substitution; neoclassical growth;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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