Nonlinear Propagation of Sectoral Productivity Shocks with Variable Elasticities of Substitution

Saumik Paul () and Dhushyanth Raju
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Saumik Paul: University of Manchester

No 16611, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the nonlinear propagation of sectoral productivity shocks in a general equilibrium framework with intersectoral linkages characterized by allowing elasticities of substitution in sectoral outputs and sectoral productivities to vary across sector pairs. Evidence based on a sample of 38 countries and 35 sectors shows stronger roles of certain sectors in the aggregate propagation of sectoral productivity shocks with variable elasticities than with constant elasticities. The results of sectoral productivity shocks on cross-country income convergence between 2005 and 2011 are robust across the two types of elasticities in terms of the direction of change, but not the magnitude.

Keywords: nonlinear propagation of productivity shock; Morishima elasticity of substitution; intersectoral linkages (search for similar items in EconPapers)
JEL-codes: D24 D57 F15 F43 N10 O47 Q54 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-11
New Economics Papers: this item is included in nep-eec and nep-eff
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