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Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis

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  • Yuhn, Ky-hyang

Abstract

A recent development in microeconomic theory suggests that the size of the elasticity of substitution between factors is relevant to economic growth. This study undertakes an empirical investigation of this proposition, comparing two economies--the United States and South Korea. The authors' test results support the de la Grandville hypothesis that the elasticity of substitution is a potent explanatory variable of economic growth. This inquiry also provides a clue to the puzzle that the U.S. elasticity of substitution between labor and capital is well below unity whereas that of South Korea is close to unity; nonetheless, the U.S. Factor shares have tended to remain fairly stable whereas the distributive shares of South Korea seem to have changed in favor of capital. Their findings indicate that a high elasticity of substitution is a bad signal for the distribution of income under the paradigm of modern technology. Copyright 1991 by MIT Press.

Suggested Citation

  • Yuhn, Ky-hyang, 1991. "Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 340-346, May.
  • Handle: RePEc:tpr:restat:v:73:y:1991:i:2:p:340-46
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    Cited by:

    1. Valery Lazarev, 2004. "Political Rents, Promotion Incentives, and Support for a Non-Democratic Regime," Working Papers 882, Economic Growth Center, Yale University.
    2. Miyagiwa, Kaz & Papageorgiou, Chris, 2007. "Endogenous aggregate elasticity of substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2899-2919, September.
    3. repec:eee:energy:v:148:y:2018:i:c:p:896-903 is not listed on IDEAS
    4. Growiec, Jakub & Schumacher, Ingmar, 2008. "On technical change in the elasticities of resource inputs," Resources Policy, Elsevier, vol. 33(4), pages 210-221, December.
    5. Marianne Saam, 2005. "Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor," DEGIT Conference Papers c010_013, DEGIT, Dynamics, Economic Growth, and International Trade.
    6. Pittel, Karen & Röpke, Luise, 2014. "The Implications of Energy Input Flexibility for a Resource Dependent Economy," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100321, Verein für Socialpolitik / German Economic Association.
    7. Robert S. Chirinko & Debdulal Mallick, 2014. "The Substitution Elasticity, Factor Shares, Long-Run Growth, and the Low-Frequency Panel Model," CESifo Working Paper Series 4895, CESifo Group Munich.
    8. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 769-799, December.
    9. Jakub Growiec, 2008. "A new class of production functions and an argument against purely labor-augmenting technical change," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(4), pages 483-502.
    10. Mallick, Debdulal, 2010. "Capital-labor substitution and balanced growth," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1131-1142, December.
    11. Francis J. Cronin & Elisabeth Colleran & Mark Gold, 1997. "Telecommunications, Factor Substitution And Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 15(3), pages 21-31, July.
    12. Peter McAdam, 2016. "de La Grandville, Olivier: Economic growth: a unified approach," Journal of Economics, Springer, vol. 119(1), pages 91-96, September.
    13. André Mollick, 2011. "The world elasticity of labor substitution across education levels," Empirical Economics, Springer, vol. 41(3), pages 769-785, December.
    14. Rodolfo Cermeño & Sirenia Vázquez, 2009. "Technological Backwardness in Agriculture: Is it Due to Lack of R&D, Human Capital, and Openness to International Trade?," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 673-686, November.
    15. Ali YOUSEFI & Sadegh KHALILIAN & Mohammad Hadi HAJIAN, "undated". "The Role of Water Sector in Iranian Economy: A CGE Modeling Approach," EcoMod2010 259600173, EcoMod.
    16. Ryuzo Sato & Tamaki Morita, 2009. "Quantity Or Quality: The Impact Of Labour Saving Innovation On Us And Japanese Growth Rates, 1960-2004," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 407-434.
    17. Al-Mutairi, Naief & Burney, Nadeem A., 2002. "Factor substitution, and economies of scale and utilisation in Kuwait's crude oil industry," Energy Economics, Elsevier, vol. 24(4), pages 337-354, July.
    18. Getachew, Yoseph Y. & Turnovsky, Stephen J., 2015. "Productive government spending and its consequences for the growth–inequality tradeoff," Research in Economics, Elsevier, vol. 69(4), pages 621-640.
    19. de La Grandville Olivier, 2012. "How Much Should a Nation Save? A New Answer," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(2), pages 1-36, April.

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