Capital-labor substitution and balanced growth
This paper explores how different values of the elasticity of substitution between capital and labor ([sigma]) impact on the balanced growth paths and growth potential of a country in exogenous growth models. The behavior of the system depends on the value of [sigma] and the passage of [sigma] through two critical values causes a qualitative change in the nature of the singular points and of its trajectories. The balanced growth path defined by a singular point in the form of a saddle-path exists and is locally stable if [sigma] lies between two critical values.
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