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The Solow model with CES technology: nonlinearities and parameter heterogeneity

  • Winford H. Masanjala

    (Department of Economics, Louisiana State University, USA)

  • Chris Papageorgiou

    (Department of Economics, Louisiana State University, USA)

This paper examines whether nonlinearities in the aggregate production function can explain parameter heterogeneity in the Solow growth regressions. Nonlinearities in the production technology are introduced by replacing the commonly used Cobb-Douglas (CD) aggregated production specification with the more general Constant-Elasticity-of-Substitution (CES) specification. We first justify our choice of production function by showing that cross-country regressions favour the CES over the CD technology. Then, by using an endogenous threshold methodology we show that the Solow model with CES technology is consistent with the existence of multiple regimes. Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.722
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File URL: http://qed.econ.queensu.ca:80/jae/2004-v19.2/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 19 (2004)
Issue (Month): 2 ()
Pages: 171-201

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Handle: RePEc:jae:japmet:v:19:y:2004:i:2:p:171-201
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  2. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics 319., Boston College Department of Economics, revised 12 May 1998.
  3. Chris Papageorgiou & Kaz Miyagiwa, . "Elasticity of Substitution and Growth: Normalized CES in the Diamond Model," Departmental Working Papers 2001-05, Department of Economics, Louisiana State University.
  4. Ben S. Bernanke & Refet S. Gürkaynak, 2002. "Is Growth Exogenous? Taking Mankiw, Romer, and Weil Seriously," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 11-72 National Bureau of Economic Research, Inc.
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  6. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  7. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-84, Oct.-Dec..
  8. Liu, Zhenjuan & Stengos, Thanasis, 1999. "Non-linearities in Cross-Country Growth Regressions: A Semiparametric Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 527-38, Sept.-Oct.
  9. Brock,W.A. & Durlauf,S.N., 2000. "Growth economics and reality," Working papers 24, Wisconsin Madison - Social Systems.
  10. Durlauf, Steven N., 2001. "Manifesto for a growth econometrics," Journal of Econometrics, Elsevier, vol. 100(1), pages 65-69, January.
  11. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
  12. Steven N. Durlauf, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 349-366.
  13. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-83, May.
  14. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
  15. Chris Papageorgiou, . "Trade as a Threshold Variable for Multiple Regimes," Departmental Working Papers 2001-06, Department of Economics, Louisiana State University.
  16. Johnson, Paul A. & Takeyama, Lisa N., 2001. "Initial conditions and economic growth in the US states," European Economic Review, Elsevier, vol. 45(4-6), pages 919-927, May.
  17. Duffy, John & Papageorgiou, Chris, 2000. "A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
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  20. Chris Papageorgiou & John Duffy & Fidel Perez-Sebastian, . "Capital-Skill complementarity? Evidence from a Panel of Countries," Departmental Working Papers 2003-12, Department of Economics, Louisiana State University.
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  22. Durlauf,S.N. & Kourtellos,A. & Minkin,A., 2000. "The local Solow growth model," Working papers 21, Wisconsin Madison - Social Systems.
  23. Costas AZARIADIS & David DE LA CROIX, 2002. "Growth or equality ? Losers and gainers from financial reform," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002036, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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