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.

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.

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 O Crescimento da Economia Mineira: uma análise a partir da elasticidade de substituição dos fatores produtivos

2012 ◽  
Vol 6 (2) ◽  
pp. 145
Author(s):  
Maria Alice Ferreira ◽  
Emerson Costa Santos ◽  
Josiane Souza Paula ◽  
Elaine Aparecida Fernandes
Keyword(s):  
Minas Gerais ◽  
Elasticity Of Substitution ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Per Capita

O objetivo geral do presente estudo foi estudar a estrutura de produção do Estado de Minas Gerais nos anos de 2002 a 2008, a partir da função Constant Elasticity of Substitution (CES), por meio de técnicas de dados em painel. Além disso, procurou-se averiguar quão importante é a participação destes insumos no crescimento econômico. Para isso, o modelo teórico baseou-se no teorema de Klump e La Grandville (2000). Os resultados sugerem que a função de produção para a economia mineira seja uma CES, além de indicarem que o valor da estimativa da elasticidade de substituição é superior à unidade. Isto é, um aumento no preço do fator mão de obra resultará em uma maior redução na quantidade do fator utilizada, o que acarretará uma queda na parcela deste fator na renda. Entretanto, quando a elasticidade de substituição é menor que um, as possibilidades de subs- tituição entre trabalho e capital tendem a reduzir-se quando o produto cresce. Assim pode-se dizer que ocorreu um processo substitutivo de mão de obra por capital, movido pelo processo de modernização produtiva recente. Desse modo, no longo prazo é possível que o Estado desfrute de maior renda per capita através da substituição de trabalho por capital.

U.S. ELASTICITIES OF SUBSTITUTION AND FACTOR AUGMENTATION AT THE INDUSTRY LEVEL

2012 ◽  
Vol 17 (4) ◽  
pp. 861-897 ◽  
Author(s):  
Andrew T. Young
Keyword(s):  
Manufacturing Sector ◽  
Weighted Average ◽  
Value Added ◽  
The United States ◽  
Large Majority ◽  
Elasticity Of Substitution ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
First Order ◽  
Industry Level

We provide industry-level estimates of the elasticity of substitution (σ) between capital and labor in the United States. We also estimate rates of factor augmentation. Aggregate estimates are produced. Our empirical model comes from the first-order conditions associated with a constant–elasticity of substitution production function. Our data represent 35 industries at roughly the 2-digit SIC level, 1960–2005. We find that aggregate U.S. σ is likely less than 0.620. σ is likely less than unity for a large majority of individual industries. Evidence also suggests that aggregate σ is less than the value-added share-weighted average of industry σ's. Aggregate technical change appears to be net labor–augmenting. This also appears to be true for the large majority of individual industries, but several industries may be characterized by net capital augmentation. When industry-level elasticity estimates are mapped to model sectors, the manufacturing sector σ is lower than that of services; the investment sector σ is lower than that of consumption.

scholarly journals A growth accounting fejlődése a növekedéselméletek tükrében

Competitio ◽  
2011 ◽  
Vol 10 (1) ◽  
pp. 85-103
Author(s):  
Levente Nádasi
Keyword(s):  
Elasticity Of Substitution ◽  
Growth Accounting ◽  
Economic Literature ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution

Jelen írásban röviden bemutatom az egyes növekedéselméletek fejlődését, számba véve az egyes fejlődési szakaszokban a növekedés legfontosabb forrásainak tekintett tényezőket. Mivel a termelési függvény egyik fontos paramétere, a helyettesítési rugalmasság értéke nem egységnyi, ahogyan azt a nemzetközi vizsgálatokban alkalmazott Cobb–Douglas-termelési függvény feltételezi, és a helyettesítési rugalmasság értéke 1-től eltérő is lehet, szükséges egy általánosabb, CES típusú (Constant Elasticity of Substitution – állandó helyettesítési rugalmasságú) „termelési függvény”-család alkalmazása is. Technikai kérdésként felmerül a termelési tényezők csoportosítása is. A helyettesítési rugalmasság egyben hatékonysági tényező is, ezért a termelési függvény ezen jellemzője kiemelt szerepet kap az elemzésben. Végül összefoglalom azokat a legjelentősebb irodalmakat, amelyek főként a növekedés összetételével (growth accounting) foglalkoznak, és megpróbálnak választ találni arra a kérdésre, hogy mely faktorok játszanak jelentős vagy kevésbé jelentős szerepet a gazdasági növekedésben. A growth accounting erősen összekapcsolódik a növekedéselméletekkel, így a megfelelő pontokon visszautalok az egyes növekedéselméletekre is. Journal of Economic Literature (JEL) kód: E13, O47

scholarly journals Substitution between Immigrant and Native Farmworkers in the United States: Does Legal Status Matter?

2019 ◽  
Vol 10 (1) ◽  
Author(s):  
Xuan Wei ◽  
Gülcan Önel ◽  
Zhengfei Guan ◽  
Fritz Roka
Keyword(s):  
United States ◽  
Legal Status ◽  
Substitution Effect ◽  
The United States ◽  
Elasticity Of Substitution ◽  
Immigrant Workers ◽  
Policy Debate ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Unauthorized Immigrant

AbstractThe policy debate surrounding the employment of immigrant workers in U.S. agriculture centers around the extent to which immigrant farmworkers adversely affect the economic opportunities of native farmworkers. To help answer this question, we propose a three-layer nested constant elasticity of substitution (CES) framework to investigate the substitutability among heterogeneous farmworker groups based on age, skill, and legal status utilizing National Agricultural Workers Survey (NAWS) data from 1989 through 2012. We use farmwork experience and type of task performed as alternative proxies for skill to disentangle the substitution effect between U.S. citizens, authorized immigrants, and unauthorized immigrant farmworkers. Results show that substitutability between the three legal status groups is small; neither authorized nor unauthorized immigrant farmworkers have a significant impact on the employment of native farmworkers.

scholarly journals Non-Constant Elasticity of Substitution and Intermittent Renewable Energy

2020 ◽  
Vol 49 (2) ◽  
pp. 321-359
Author(s):  
Saketh Aleti ◽  
Gal Hochman
Keyword(s):  
Renewable Energy ◽  
Economic Value ◽  
Market Price ◽  
Electricity Consumption ◽  
Electricity Sector ◽  
Elasticity Of Substitution ◽  
Carbon Taxes ◽  
Constant Elasticity ◽  
Fossil Energy ◽  
Constant Elasticity Of Substitution

In this article, we present a model of the electricity sector where generation technologies are intermittent. The economic value of an electricity generation technology is given by integrating its production profile with the market price of electricity. We use estimates of the consumer's intertemporal elasticity of substitution for electricity consumption while parameterizing the model empirically to numerically calculate the elasticity between renewables and fossil energy. We find that there is a non-constant elasticity of substitution between renewable and fossil energy that depends on prices and intermittency. This suggests that the efficacy and welfare effects of carbon taxes and renewable subsidies vary geographically. Subsidizing research into battery technology and tailoring policy for local energy markets can mitigate these distributional side effects while complementing traditional policies used to promote renewable energy.

Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy

2019 ◽  
Vol 19 (4) ◽  
Author(s):  
Takuya Obara ◽  
Shuichi Tsugawa
Keyword(s):  
Utility Function ◽  
Public Good ◽  
Income Tax ◽  
Optimal Taxation ◽  
Optimal Level ◽  
Elasticity Of Substitution ◽  
Public Good Provision ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Good Provision

Abstract We examine optimal taxation and public good provision by a government that considers reduction of envy as a constraint. We adopt the extended envy-freeness proposed by Diamantaras and Thomson (1990. “A Refinement and Extension of the No-Envy Concept.” Economics Letters 33: 217–22), called λ-equitability. We derive the modified Samuelson rule under an optimal nonlinear income tax and show, using a constant elasticity of substitution utility function, that the direction of distorting the original Samuelson rule to relax the λ envy-free constraint is crucially determined by the elasticity of substitution. Furthermore, we numerically show that the optimal level of provision increases (decreases) in the degree of envy-freeness when the original Samuelson rule is upwardly (downwardly) distorted.

scholarly journals Macroeconomic Growth in Vietnam Transitioned to Market: An Unrestricted VES Framework

Economies ◽  
2020 ◽  
Vol 8 (3) ◽  
pp. 58 ◽  
Author(s):  
Nguyen Ngoc Thach
Keyword(s):  
Economic Growth ◽  
High Speed ◽  
Transition Economy ◽  
Bayes Factor ◽  
Elasticity Of Substitution ◽  
Mcmc Methods ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Labour Share ◽  
The Relationship

The Vietnamese economy has increased at high speed over the transformation decades; however, most recent studies on the economic growth of this country used the Cobb-Douglas or CES (Constant Elasticity of Substitution) production functions, which are unable to explore the relationship between the elasticity of capital-labour substitution and development process, and hence, are not relevant to accessing a dynamic economic system. For that reason, this study is conducted to specify an unrestricted VES (Variable Elasticity of Substitution) production function in a one-sector growth model of Vietnam, highlighted by two characteristics: successful transition from plan to market and rapid progress. The VES is given preference over the CES and the Cobb-Douglas having the elasticity of substitution between capital and labour varying with economic development. By employing a Bayesian nonlinear regression through MCMC methods, the study reported the following findings: (1) the above-unity variable elasticity of capital-labour substitution in an aggregate unrestricted VES function specified for Vietnam shows that the model generates the possibility of endogenous economic growth; (2) the capital share tends to increase, while the labour share faces a downward trend along with the development of Vietnam; (3) the VES is empirically proven through a Bayes factor test to be superior to the CES and Cobb-Douglas for analysis of the growth process of Vietnam, an emerging transition economy.

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