Non-Balanced Growth and Production Technology Estimation
Capital-labor substitution and TFP estimates are essential features of many economic models. Such models typically embody a balanced growth path. This often leads researchers to estimate models imposing stringent prior choices on technical change. We demonstrate that estimation of the substitution elasticity and TFP growth can be substantially biased if technical progress is thereby mis-specified. We obtain analytical and simulation results in the context of a model consistent with balanced and near-balanced growth (i.e. departures from balanced growth but broadly stable factor shares). Given this evidence, a Constant Elasticity of Substitution production function system is then estimated for the US economy. Results show that the estimated substitution elasticity tends to be significantly lower using a factor-augmenting specification (well below one). We are also able to reject conventional neutrality forms in favor of general factor augmentation with a non-negligible capital-augmenting component. Our work thus provides insights into production and supply-side estimation in balanced-growth frameworks.
|Date of creation:||Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles I. Jones, 2005.
"The Shape of Production Functions and the Direction of Technical Change,"
The Quarterly Journal of Economics,
MIT Press, vol. 120(2), pages 517-549, May.
- Charles I. Jones, 2004. "The Shape of Production Function and the Direction of Technical Change," NBER Working Papers 10457, National Bureau of Economic Research, Inc.
- 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.
- Christoffel, Kai & Warne, Anders & Coenen, Günter, 2010. "Forecasting with DSGE models," Working Paper Series 1185, European Central Bank.
- Thursby, Jerry, 1980. "Alternative CES Estimation Techniques," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 295-99, May.
- Daron Acemoglu, 2003.
"Labor- And Capital-Augmenting Technical Change,"
Journal of the European Economic Association,
MIT Press, vol. 1(1), pages 1-37, 03.
- Joon Y. Park, 2003.
"Bootstrap Unit Root Tests,"
Econometric Society, vol. 71(6), pages 1845-1895, November.
- Joon Y. Park, 2000. "Bootstrap Unit Root Tests," Econometric Society World Congress 2000 Contributed Papers 1587, Econometric Society.
- Park, Joon, 2002. "Bootstrap Unit Root Tests," Working Papers 2003-04, Rice University, Department of Economics.
- 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.
- GROWIEC, Jakub, 2006. "A new class of production functions and an argument against purely labor-augmenting technical change," CORE Discussion Papers 2006056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Growiec, Jakub, 2006. "A New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change," MPRA Paper 7069, University Library of Munich, Germany.
- Temple, Jonathan, 2012.
"The calibration of CES production functions,"
Journal of Macroeconomics,
Elsevier, vol. 34(2), pages 294-303.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997.
"The science of monetary policy: A new Keynesian perspective,"
Economics Working Papers
356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
- Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
- Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
- Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
- F. M. Fisher & R. M. Solow & J. R. Kearl, 1974.
"Aggregate Production Functions: Some CES xperiments,"
136, Massachusetts Institute of Technology (MIT), Department of Economics.
- Fisher, Franklin M & Solow, Robert M & Kearl, James M, 1977. "Aggregate Production Functions: Some CES Experiments," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 305-20, June.
- Growiec, Jakub, 2008. "Production functions and distributions of unit factor productivities: Uncovering the link," Economics Letters, Elsevier, vol. 101(1), pages 87-90, October.
- Attfield, Cliff & Temple, Jonathan R.W., 2010.
"Balanced growth and the great ratios: New evidence for the US and UK,"
Journal of Macroeconomics,
Elsevier, vol. 32(4), pages 937-956, December.
- Cliff L. F. Attfield & Jonathan R. W. Temple, 2006. "Balanced growth and the great ratios: new evidence for the US and UK," Centre for Growth and Business Cycle Research Discussion Paper Series 75, Economics, The Univeristy of Manchester.
- Berndt, Ernst R, 1976. "Reconciling Alternative Estimates of the Elasticity of Substitution," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 59-68, February.
- Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The Case of the Missing Productivity Growth: Or, Does Information Technology Explain why Productivity Accelerated in the US but not the UK?," NBER Working Papers 10010, National Bureau of Economic Research, Inc.
- Klump, Rainer & Preissler, Harald, 2000. " CES Production Functions and Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 41-56, March.
- Klump, Rainer & Saam, Marianne, 2008.
"Calibration of normalised CES production functions in dynamic models,"
Elsevier, vol. 99(2), pages 256-259, May.
- Klump, Rainer & Saam, Marianne, 2006. "Calibration of normalised CES production functions in dynamic models," ZEW Discussion Papers 06-78, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2009.
"Identifying the elasticity of substitution with biased technical change,"
Working Paper Series
1001, European Central Bank.
- Miguel A. Le�n-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-57, September.
- Yoosoon Chang & Joon Y. Park, 2003. "A Sieve Bootstrap For The Test Of A Unit Root," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(4), pages 379-400, 07.
- Miguel A. Leon-Ledesma & Mathan Satchi, 2011. "The Choice of CES Production Techniques and Balanced Growth," Studies in Economics 1113, School of Economics, University of Kent.
When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:1204. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tracey Girling)
If references are entirely missing, you can add them using this form.