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The normalized CES production function: theory and empirics

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  • Klump, Rainer
  • McAdam, Peter
  • Willman, Alpo

Abstract

The elasticity of substitution between capital and labor and, in turn, the direction of technical change are critical parameters in many fields of economics. Until recently, though, the application of production functions with non-unitary substitution elasticities (i.e., non Cobb Douglas) was hampered by empirical and theoretical uncertainties. As has recently been revealed, JEL Classification: C22, E23, E25, O30, O51

Suggested Citation

  • Klump, Rainer & McAdam, Peter & Willman, Alpo, 2011. "The normalized CES production function: theory and empirics," Working Paper Series 1294, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111294
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    Keywords

    constant elasticity of substitution production function; estimation; factor-augmenting technical change; growth theory; identification; normalization;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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