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Economic growth and factor substitution with elastic labor supply

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  • Gómez, Manuel A.

Abstract

We study the link between the elasticity of factor substitution and economic growth in the Ramsey–Cass–Koopmans model with elastic labor supply and normalized CES production. If the baseline value of capital per unit of effective labor is below its steady-state value, an increase in the elasticity of substitution generates a higher steady-state income, capital and consumption per capita. This is due to the combination of a positive efficiency effect of a higher elasticity of substitution and a positive distribution effect. However, the effect of a higher elasticity of substitution on these variables along the transition is ambiguous.

Suggested Citation

  • Gómez, Manuel A., 2018. "Economic growth and factor substitution with elastic labor supply," Mathematical Social Sciences, Elsevier, vol. 94(C), pages 49-57.
    • Handle: RePEc:eee:matsoc:v:94:y:2018:i:c:p:49-57
    DOI: 10.1016/j.mathsocsci.2018.05.003
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    References listed on IDEAS

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    2. Gómez, Manuel A., 2018. "Factor substitution and convergence speed in the neoclassical model with elastic labor supply," Economics Letters, Elsevier, vol. 172(C), pages 89-92.

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