Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor

Marianne Saam (m.saam@zbw.eu)

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: Some recent work on economic growth considers the aggregate elasticity of substitution between capital and labor as a measure of economic flexibility. It is thought to depend on technological and institutional determinants. I study how a openness to trade affects the aggregate elasticity of substitution of a large country in a Heckscher-Ohlin model with trade in intermediates and equalization of factor prices. With constant capital stocks, trade enlarges the set of available intermediates in the same way as a rise in the elasticity of substitution in their production would. An optimal tariff corresponds to an additional rise in the elasticity of substitution. In two growing economies, trade only rises the elasticity of substitution of the GDP function of the faster growing country.

Keywords: aggregate elasticity of substitution; normalization; Heckscher-Ohlin model; capital accumulation (search for similar items in EconPapers)
JEL-codes: E23 F11 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-06
New Economics Papers: this item is included in nep-dev and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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