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Nonlinear Propagation of Sectoral Productivity Shocks with Variable Elasticities of Substitution


  • Paul, Saumik

    (Newcastle University)

  • Raju, Dhushyanth

    (World Bank)


This paper examines the nonlinear propagation of sectoral productivity shocks in a general equilibrium framework with intersectoral linkages characterized by allowing elasticities of substitution in sectoral outputs and sectoral productivities to vary across sector pairs. Evidence based on a sample of 38 countries and 35 sectors shows stronger roles of certain sectors in the aggregate propagation of sectoral productivity shocks with variable elasticities than with constant elasticities. The results of sectoral productivity shocks on cross-country income convergence between 2005 and 2011 are robust across the two types of elasticities in terms of the direction of change, but not the magnitude.

Suggested Citation

  • Paul, Saumik & Raju, Dhushyanth, 2023. "Nonlinear Propagation of Sectoral Productivity Shocks with Variable Elasticities of Substitution," IZA Discussion Papers 16611, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp16611

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    References listed on IDEAS

    1. Harald Fadinger & Christian Ghiglino & Mariya Teteryatnikova, 2022. "Income Differences, Productivity, and Input-Output Networks," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 367-415, April.
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    6. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    7. George C. Davis & C. Richard Shumway, 1996. "To Tell the Truth about Interpreting the Morishima Elasticity of Substitution," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 44(2), pages 173-182, July.
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    More about this item


    nonlinear propagation of productivity shock; Morishima elasticity of substitution; intersectoral linkages;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F15 - International Economics - - Trade - - - Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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