Hostname: page-component-7dd5485656-npwhs Total loading time: 0 Render date: 2025-10-30T00:29:16.481Z Has data issue: false hasContentIssue false
  • English
  • Français

THE ELASTICITY OF SUBSTITUTION AS AN ENGINE OF GROWTH

Published online by Cambridge University Press:  15 June 2010

Theodore Palivos  and
Giannis Karagiannis
Theodore Palivos*
Affiliation:
University of Macedonia
Giannis Karagiannis
Affiliation:
University of Macedonia
*
Address correspondence to: Theodore Palivos, Department of Economics, University of Macedonia, 156 Egnatia Street, GR-540 06 Salonica, Greece; email: tpalivos@uom.gr
Get access Rights & Permissions [Opens in a new window]

Abstract

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.

Keywords

Elasticity of SubstitutionEndogenous GrowthConvex Models

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 14 , Issue 5 , November 2010 , pp. 617 - 628
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Blackorby, Charles and Russell, Robert R. (1989) Will the real elasticity of substitution please stand up? (A comparison of the Allen/Uzawa and Morishima elasticities). American Economic Review 79, 882–888.Google Scholar
Boldrin, Michele (1992) Dynamic externalities, multiple equilibria, and growth. Journal of Economic Theory 58, 198–218.CrossRefGoogle Scholar
Bruno, Michael (1968) Estimation of factor contribution to growth under structural disequilibrium. International Economic Review 9, 49–62.Google Scholar
Duffy, John and Papageorgiou, Chris (2000) A cross-country empirical investigation of the aggregate production function specification. Journal of Economic Growth 5, 87–120.CrossRefGoogle Scholar
Feng, Guohua and Serletis, Apostolos (2008) Productivity trends in U.S. manufacturing: Evidence from the NQ and the AIM cost functions. Journal of Econometrics 142, 281–311.Google Scholar
Ferguson, Charles E. (1965) Substitution, technical Progress, and returns to scale. American Economic Review Papers and Proceedings 55, 296–305.Google Scholar
Jones, Larry E. and Manuelli, Rodolfo E. (1990) A convex model of equilibrium growth: Theory and policy implications. Journal of Political Economy 98, 1008–1038.Google Scholar
Jones, Larry E. and Manuelli, Rodolfo E. (1992) Finite lifetimes and growth. Journal of Economic Theory 58, 171–197.CrossRefGoogle Scholar
Jones, Larry E. and Manuelli, Rodolfo E. (1997) Sources of growth. Journal of Economic Dynamics and Control 21, 75–114.Google Scholar
Karagiannis, Giannis, Palivos, Theodore, and Papageorgiou, Chris (2005) Variable elasticity of substitution and economic growth. In Claude, Diebolt and Kyrtsou, Catherine (eds.), New Trends in Macroeconomics, pp. 21–37. Berlin: Springer.Google Scholar
Klump, Rainer and de La Grandville, Olivier (2000) Economic growth and the elasticity of substitution: Two theorems and some suggestions. American Economic Review 90, 282–291.CrossRefGoogle Scholar
Klump, Rainer and Preissler, Harald (2000) CES production functions and economic growth. Scandinavian Journal of Economics 102, 41–56.Google Scholar
La Grandville, Olivier de (1989) In quest of the Slutsky diamond. American Economic Review 79, 468–481.Google Scholar
May, Douglas J. and Denny, Michael (1979) Factor-augmenting technical progress and productivity in U.S. manufacturing. International Economic Review 20, 759–774.CrossRefGoogle Scholar
Nakamura, Hideki and Nakamura, Masakatsu (2008) Constant-elasticity-of-substitution production function. Macroeconomic Dynamics 12, 694–701.Google Scholar
Revankar, Nagesh S. (1971) A class of variable elasticity of substitution production function. Econometrica 39, 61–71.CrossRefGoogle Scholar
Solow, Robert M. (1956) A contribution to the theory of economic growth. Quarterly Journal of Economics 70, 65–94.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2008) The role of factor substitution in the theory of economic growth and income distribution: Two examples. Journal of Macroeconomics 30, 604–629.Google Scholar
Yuhn, Ky-Hyang (1991) Economic growth, technical change biases, and the elasticity of substitution: A test of the de La Grandville hypothesis. Review of Economics and Statistics 73, 340–346.CrossRefGoogle Scholar