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ó: The Long And Short Of It

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  • Robert S. Chirinko

Abstract

Research on the elasticity of substitution between capital and labor - σ - has been proceeding for 75 years. While there is clearly a strong case for the importance of σ in the analysis of growth and other economic issues, much less agreement exists on the value of σ. This paper offers some perspectives on prior estimates of σ, emphasizing the fundamental tension between the short-run data that are available and the long-run parameter that is required. Estimates of σ based on various short-run and long-run models are discussed and, while the estimates range widely, the weight of the evidence suggests a value of σ in the range of 0.40 to 0.60. There is little evidence to sustain the assumption of a Cobb-Douglas production function.

Suggested Citation

  • Robert S. Chirinko, 2008. "ó: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo.
  • Handle: RePEc:ces:ceswps:_2234
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    More about this item

    Keywords

    production; function; capital formation; economic growth; estimating long-run relations;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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