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- Title
Elasticity of substitution and growth: normalized CES in the Diamond model.
- Authors
Miyagiwa, Kaz; Papageorgiou, Chris
- Abstract
It is often asserted that the more substitutable capital and labor are in the aggregate production the more rapidly an economy grows. Recently this has been formally confirmed within the Solow model by Klump and de La Grandville (2000). This paper demonstrates that there exists no such monotonic relationship between factor substitutability and growth in the Diamond overlapping-generations model. In particular, we prove that, if capital and labor are relatively substitutable, a country with a greater elasticity of substitution exhibits lower per capita output growth in transit and in steady state.
- Subjects
ELASTICITY (Economics); LABOR; CAPITAL; ECONOMIC development; ECONOMETRIC models; PRODUCTION (Economic theory); ECONOMICS; PER capita
- Publication
Economic Theory, 2003, Vol 21, Issue 1, p155
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-002-0268-9