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An empirical investigation of paradoxes: reswitching and reverse capital deepening in capital theory

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  • Zonghie Han
  • Bertram Schefold

Abstract

This paper examines the empirical relevance of the capital controversy. The price model of Sraffa and the dual models of the price and quantity systems of von Neumann become the basis of the investigation. In the course of the controversy, it proved easy to construct theoretical examples which contradicted the fundamental neoclassical hypothesis of an inverse capital demand function. This paper presents empirical examples for the first time. Thiry-two input-output tables from the OECD database serve as data. As a result, one envelope is found which involves reswitching. Reverse substitution of labour or reverse capital deepening are observed in about 3.65% of tested cases: they involve at least two switchpoints. Copyright 2006, Oxford University Press.

Suggested Citation

  • Zonghie Han & Bertram Schefold, 2006. "An empirical investigation of paradoxes: reswitching and reverse capital deepening in capital theory," Cambridge Journal of Economics, Oxford University Press, vol. 30(5), pages 737-765, September.
  • Handle: RePEc:oup:cambje:v:30:y:2006:i:5:p:737-765
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    File URL: http://hdl.handle.net/10.1093/cje/bei089
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