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Elasticity of Factor Substitution and Capital Formation in a Two-Sector Economy

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  • Mino, Kazuo

Abstract

This paper explores the relationship between factor substitution in production and the steady-sate level of capital stock in a growing economy. Unlike the foregoing studies on this topic that have exclusively utilized one-sector growth models, we consider a two-sector economy where investment and consumption goods are produced by different technologies. We show that the relation between the elasticity of substation and the long-run capital formation critically depends on the factor-intensity ranking between the two sectors.

Suggested Citation

  • Mino, Kazuo, 2011. "Elasticity of Factor Substitution and Capital Formation in a Two-Sector Economy," MPRA Paper 58320, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58320
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    File URL: https://mpra.ub.uni-muenchen.de/58320/1/MPRA_paper_58320.pdf
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    References listed on IDEAS

    as
    1. Rainer Klump & Harald Preissler, 2000. "CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
    2. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
    3. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    elasticity of factor substitution; two sector model; factor intensity ranking; capital formation;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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