Elasticity of substitution between public and private capital: Evidence from manufacturing firms in Europe

Zidong An, Feinan Zhang and Haibo Li

Economics Letters, 2022, vol. 219, issue C

Abstract: Most macroeconomic models either assume that public and private capital are perfectly substitutable in the production process or they are combined under a Cobb–Douglas type production function. Using post-crisis data from European manufacturing firms, this letter finds the elasticity of substitution between public and private capital to be 3.45, suggesting these widely used assumptions are invalid. Besides, firms with higher dependence on external financing tend to have a higher elasticity of substitution.

Keywords: Elasticity of substitution; Production function; Public capital; Crowd-in effect (search for similar items in EconPapers)
JEL-codes: O12 O16 O23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:219:y:2022:i:c:s0165176522002828

DOI: 10.1016/j.econlet.2022.110780

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