FACTOR SUBSTITUTION AND ECONOMIC GROWTH: A UNIFIED APPROACH

2012 ◽  
Vol 16 (4) ◽  
pp. 625-656 ◽  
Author(s):  
Jianpo Xue ◽  
Chong K. Yip
Keyword(s):  
Economic Growth ◽  
Steady State ◽  
Growth Models ◽  
Elasticity Of Substitution ◽  
Unified Approach ◽  
Factor Income ◽  
Factor Substitution ◽  
State Income ◽  
Per Capita ◽  
Relative Scarcity

This paper provides a unified approach to characterizing the relation between factor substitution and economic growth in different one-sector growth models (namely, the Solow, Ramsey, and Diamond models). Our main finding is that if better factor substitution raises savings in the steady state, then a higher per capita income results. There are two channels by which factor substitution affects savings: the positive efficiency effect via income and the ambiguous distribution effect via factor income shares. If the efficiency effect dominates, then a higher elasticity of substitution leads to a higher level of per capita steady-state income. In transition, factor substitution affects the rate of convergence both directly and through the equilibrium profit share. The former arises from diminishing marginal productivity of capital whereas the latter reflects its relative scarcity. Depending on the interaction of these effects, the net outcomes are characterized.

MINIMUM CONSUMPTION REQUIREMENTS: THEORETICAL AND QUANTITATIVE IMPLICATIONS FOR GROWTH AND DISTRIBUTION

1999 ◽  
Vol 3 (4) ◽  
pp. 482-505 ◽  
Author(s):  
Satyajit Chatterjee ◽  
B. Ravikumar
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Steady State ◽  
Wealth Distribution ◽  
Household Wealth ◽  
Elasticity Of Substitution ◽  
Positive Dependence ◽  
Per Capita ◽  
State Growth ◽  
The Impact

We study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. We calibrate the minimum consumption requirement to match estimates available for a sample of Indian villagers and find that these transitional effects are quantitatively significant and depend importantly on the economy's steady-state growth rate.

Variable elasticity of substitution and economic growth in the neoclassical model

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Manuel A. Gómez
Keyword(s):  
Steady State ◽  
Elasticity Of Substitution ◽  
Neoclassical Model ◽  
Constant Elasticity ◽  
Neoclassical Growth Model ◽  
Constant Elasticity Of Substitution ◽  
State Income ◽  
Per Capita ◽  
Model Versus ◽  
Neoclassical Growth

AbstractWe study the effect of factor substitutability in the neoclassical growth model with variable elasticity of substitution. We consider two otherwise identical economies differing uniquely in their initial factor substitutability with Variable-Elasticity-of-Substitution (VES), Sobelow or Sigmoidal technologies. If the initial capital per capita is below its steady-state value, the economy with the higher initial elasticity of substitution will feature a higher steady-state income and capital per capita irrespective of whether the production technology is VES, Sobelow or Sigmoidal. Numerical results are provided to compare the effect of a higher elasticity of substitution in the Constant-Elasticity-of-Substitution (CES) model versus the models with variable-elasticity-of-substitution technology.

scholarly journals MONETARY POLICY, FACTOR SUBSTITUTION, AND CONVERGENCE

2016 ◽  
Vol 22 (1) ◽  
pp. 63-76
Author(s):  
Rainer Klump ◽  
Anne Jurkat
Keyword(s):  
Monetary Policy ◽  
Steady State ◽  
Production Functions ◽  
Elasticity Of Substitution ◽  
Model Parameters ◽  
Speed Of Convergence ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Factor Substitution ◽  
The Impact

In this paper, we examine the influence of monetary policy on the speed of convergence in a standard monetary growth model à la Sidrauski allowing for differences in the elasticity of substitution between factors of production. The respective changes in the rate of convergence and its sensitivities to the central model parameters are derived both analytically and numerically. By normalizing the constant elasticity of substitution (CES) production functions both outside the steady state and within the steady state, it is possible to distinguish between an efficiency and a distribution effect of a change in the elasticity of substitution. We show that monetary policy is the more effective, the lower is the elasticity of substitution, and that the impact of monetary policy on the speed of convergence is mainly channeled via the efficiency effect.

scholarly journals Economic and environmental convergence of transformation economy: the case of China

2019 ◽  
Vol 17 (3) ◽  
pp. 233-241 ◽  
Author(s):  
Li Rui ◽  
Lina Sineviciene ◽  
Leonid Melnyk ◽  
Oleksandr Kubatko ◽  
Oleksandra Karintseva ◽  
...  
Keyword(s):  
Economic Growth ◽  
Steady State ◽  
Convergence Rates ◽  
Environmental Parameters ◽  
Policy Recommendations ◽  
Economic Growth Rate ◽  
Endogenous Growth Model ◽  
Per Capita ◽  
Regional Transformation ◽  
Log Linear

Rapid economic reforms and proper GDP growth in China has affected the regional development of Chinese provinces. This study aims to estimate the degree of economic and environmental disparities within Chinese provinces for developing policy recommendations of regional transformation. The reduced log-linear specification of endogenous growth model is used for the estimation of convergence rates within Chinese provinces. The empirical results prove that an increase of 1% in GDP per capita basic year reduces the economic growth rate by 0.1% in the reference year. Thus, the ratio of the average per capita income in the wealthiest group to poorest provinces accounted for the factor 9.6 in 1995 and factor 4.1 in the year 2015, which means a reduction of disproportionate development. Environmental convergence trends were also found and less polluted provinces eventually increase emissions at higher rates than the initially polluted ones. With the pass of time, all provinces do move to the same steady state in environmental parameters. The speed of the economic and environmental convergence in China provinces is rather slow, and the economic growth was achieved by great sacrifices of an environment, since all provinces are striving to the same steady state in terms of pollution increase. The industrialized regions due to the presence of significant financial resources should pay more attention to the protection of the environment using all the available economic potential. At the same time, both initially poor provinces and rich have to develop more profoundly agriculture, tourism, recreation, and other environmentally friendly industries to improve economic performance.

Region’s inclusive development index as a criterion of evaluation of the territories’ socio-economic development level

2019 ◽  
pp. 20-25
Author(s):  
Svitlana Pukhyr
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Global Economy ◽  
Growth Models ◽  
Inclusive Development ◽  
Inclusive Growth ◽  
Development Index ◽  
Socio Economic Development ◽  
Per Capita ◽  
European Standards

The paper is devoted to examining of theoretical and practical aspects of introduction of the Regions’ Inclusive Development Index. At current stage, the works of contemporary foreign and domestic scientists are focused on the research of inclusive development and inclusive growth, where they more or less outline substantial misbalances of global economy growth models – GDP volumes growth is accompanied by inharmonious distribution of income between the entities, leading to stratification of population and aggravating poverty – and suggest a new balanced model of economic growth of socio-economic systems with growing involvement of all residents in economic growth processes and fair distribution of their results. Growing gaps in regions’ development, low credibility of GRP per capita in terms of estimation of socio-economic development of territories, their competitive ability and problematic nature objectively cause the need to introduce a new aggregated index to systemically and complexly make constructive managerial decisions to overcome negative tendencies, to conduct efficient state regional policy and to provide state financial assistance. The author’s approach to introduction of «Region’s Inclusive Development Index» in Ukraine at the level of regions, which is an analogue to international «Inclusive Development Index», which should show the growth (fall) of residents’ welfare in the region more comprehensively and promote achievement of European standards of the quality of life, which correspond to the principles of inclusive growth. The results of calculations of suggested Region’s Inclusive Development Index and comparative analysis by the rate of GRP per capita in followup of socio-economic development of Ukrainian regions in 2016-2017 show the reasonability of introducing this criterion as far as it reveals the advantages and defects of each region’s socio-economic development.

scholarly journals TENDENSI PROSES KONVERGENSI DAN PENENTU PERTUMBUHAN EKONOMI WILAYAH PULAU UTAMA DI INDONESIA, 1985-2010

2017 ◽  
Vol 8 (2) ◽  
pp. 167
Author(s):  
Tajerin Tajerin ◽  
Akhmad Fauzi ◽  
Bambang Juanda ◽  
Luky Adrianto
Keyword(s):  
Economic Growth ◽  
Steady State ◽  
Convergence Rate ◽  
Gross Domestic Product ◽  
Life Time ◽  
Economic Convergence ◽  
Main Island ◽  
Convergence Process ◽  
Capital Depreciation ◽  
Per Capita

Ketimpangan ekonomi antar wilayah pulau utama di Indonesia merupakan sesuatu yang secara alamiah akan terjadi. Hal ini karena, sebagai negara  epulauan, Indonesia memiliki enam wilayah pulau utama dengan karakteristik yang berbeda, yang tentunya akan menyebabkan pola pembangunan dan tingkat kemampuan tumbuh yang berbeda pula. Penelitian ini bertujuan: (1) Menganalisis tendensi proses konvergensi ekonomi antar wilayah pulau utama, dan; (2) Menduga faktor penentu pertumbuhan ekonomi wilayah pulau utama dan konrtibusinya terhadap tendensi konvergensi. Penelitian dilakukan menggunakan unit analisis wilayah pulau utama dan data sekunder periode 1985-2010 yang dianalisis dengan pendekatan ekonometrika model data panel. Hasil penelitian mununjukkan bahwa tendensi proses konvergensi ekonomi wilayah pulau utama di Indonesia selama periode analisis telah terjadi namun berlangsung lambat dengan kecepatan konvergensi ekonomi sebesar 3,22-8,50% per tahun (secara kondisional). Berdasarkan model fixed-effect, peubah modal fisik dan modal manusia berpengaruh positif terhadap tingkat pertumbuhan PDRB per kapita kondisi mapan. Sementara peubah resultan dari pertumbuhan penduduk dan penyusutan modal berpengaruh negatif terhadap tingkat pertumbuhan PDRB per kapita kondisi mapan. Dengan mengontrol peubah-peubah penentu pertumbuhan ekonomi, mampu mendorong kecepatan tendensi proses konvergensi meningkat sebesar 1,56-4,75% per tahun dengan half-life time 10,34-31,76 tahun. Hal ini berarti bahwa untuk mempercepat konvergensi ekonomi antar wilayah utama Indonesia dibutuhkan peningkatan modal fisik dan modal manusia yang terdistribusi secara lebih merata, dan diikuti pengendalian pertumbuhan penduduk dan penyusutan modal. Mengingat bahwa wilayah pulau utama di Indonesia memiliki sumberdaya kelautan yang besar, maka kebijakan untuk mempercepat konvergensi tersebut perlu diimplementasikan dengan mempertimbangkan peran kelautan yang disinergikan dengan upaya meningkatkan interrelasi (konektivitas) sektoral dan spasial antar wilayah di Indonesia. Title: Tendency of Convergence Process and Determinant of Economic Growth of Main Island Regions in Indonesia, 1985-2010The economic disparity among the main island regions in Indonesia is a natural occurrence. Due to the fact that, as an archipelago, Indonesia is consisted of six main island regions, each with its own indigenous characteristic, thus generating different development patterns and different developing abilities. Therefore, a research has been done to: (1) Analyze the tendency of economic convergenceprocess among the main island regions; and (2) Estimate the determinant factors of economic growth within the main island regions, as well as their contributions toward the convergence tendency. The research was conducted with the main island regions as the analysis unit, and secondary data covering a 25 years period, spanning from 1985 to 2010. The data acquired were analyzed using a data panel  econometric model. The analysis resulted in a finding that there has been a convergence tendency among the main island regions in Indonesia during the period analyzed. The economic convergence rate found was considered low with an estimated rateper annum of 3,22%-8,5% (Conditionally). Based  on the fixed effect model, both physical and human capitals were the variables which positively affecting the growth of the steady state per capita Regional Gross Domestic Product. While population growth and capital depreciation were the variables which negatively affecting the growth of the steady state per capita Regional Gross Domestic Product. The simulation done using the model developed showed that by controling the previously mentioned economic growth determinant factors, it was possible to induce faster convergence process tendency per annum rate to 1,56%-4,75%, with reduced half-life time to 10,24-31,76 years. Therefore, a faster regional economic convergence would require more physical and human capital to be distributed evenly among the main island regions, while constraining population growth and capital depreciation. Considering that each main island region owns a relatively abundant marine resource, therefore the convergence rate inducing policy should be implemented by pushing the role of marine sectors, while strengthening the sectoral and spatial connectivity among regions in Indonesia.

Model of Optimal Economic Growth with Endogenous Bias

1999 ◽  
Vol 3 (3) ◽  
pp. 293-310 ◽  
Author(s):  
Ryuzo Sato ◽  
Rama V. Ramachandran ◽  
Cheng Ping Lian
Keyword(s):  
Economic Growth ◽  
Steady State ◽  
Technological Progress ◽  
Growth Models ◽  
Sufficient Conditions ◽  
Optimal Economic Growth ◽  
The Cost ◽  
Factor Shares

The objective of the paper is to develop a model of optimal endogenous technological progress that will exhibit two properties sought in growth models: (1) The bias will depend on the parameters of the model—particularly those affecting the cost of inputs—instead of being constrained to be Harrod neutral; (2) factor shares will be constant in steady state. Using previously derived sufficient conditions, we show the conditions under which such a model can be constructed.

scholarly journals THE ELASTICITY OF SUBSTITUTION AS AN ENGINE OF GROWTH

2010 ◽  
Vol 14 (5) ◽  
pp. 617-628 ◽  
Author(s):  
Theodore Palivos ◽  
Giannis Karagiannis
Keyword(s):  
Lower Bound ◽  
Production Function ◽  
Growth Models ◽  
Elasticity Of Substitution ◽  
Necessary Condition ◽  
Marginal Product ◽  
General Production ◽  
Factor Substitution ◽  
Elasticity Of Factor Substitution

This paper characterizes the elasticity of factor substitution in one-sector convex growth models with a general production function. It shows that an elasticity of substitution that is asymptotically greater than unity is a sufficient (but not a necessary) condition for the existence of a lower bound on the marginal product of capital, which in turn can lead to unbounded endogenous growth. Hence, an elasticity of substitution that eventually becomes greater than unity can counteract the role of diminishing returns to capital. This renders factor substitution a powerful engine of growth.

Human capital and economic growth in the Polish sub-regions

2016 ◽  
Vol 61 (6) ◽  
pp. 31-44
Author(s):  
Barbara Dańska-Borsiak ◽  
Iwona Laskowska
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Spatial Dependence ◽  
Growth Models ◽  
Positive Influence ◽  
Gdp Per Capita ◽  
Spatial Relationships ◽  
Factors Influencing ◽  
Per Capita ◽  
Significant Positive Influence

The contemporary growth models, apart from the variables representing labour and capital, take into consideration also human capital measures. The spatial disproportions in the level of development of Polish regions give rise to the attempts of defining the factors influencing the differences. The main objective of the paper is the analysis of the relationships between the regional GDP per capita and human capital level in Polish NUTS3 regions. The additional objective is investigating whether the before mentioned phenomena exhibit spatial dependence. It was found that sub-regions with low values of human capital tend to cluster in the western Polish territories. There are no significant spatial relationships in the formation of the GDP per capita. In the second part of the paper, there are presented the estimation results of the model explaining the regional GDP per capita. The results show the significant, positive influence of the human capital level on the GDP. The study was conducted based on data for 2012.

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