Multifactor CES general equilibrium: Models and applications
Sector-specific multifactor CES elasticities of substitution and the corresponding productivity growth are jointly measured by regressing the growth of per-factor cost shares against the growth of factor prices. We use linked input-output tables for Japan and the Republic of Korea as the data source for factor price and cost shares in two temporally distant states. We then construct a multisectoral general equilibrium model using the system of estimated CES unit cost functions and evaluate the economy-wide propagation of an exogenous productivity stimulus in terms of welfare. Further, we examine the differences between models based on a priori elasticities such as Leontief and Cobb-Douglas.
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