The Choice of CES Production Techniques and Balanced Growth

Miguel Leon-Ledesma and Mathan Satchi

Studies in Economics from School of Economics, University of Kent

Abstract: We show that allowing firms a choice of CES production techniques (via the distribution parameter between capital and labor) can result in a new class of production functions that produces short-run capital-labor complementarity but yields a long-run unit elasticity of substitution. This is shown to occur if we provide a mathematical framework for this choice that maintains strict essentiality of the production process and satisfies the requirement of unit-invariance. The class of production functions derived are consistent with a balanced growth path even in the presence of capital-augmenting technical progress. The approach yields a simple yet powerful way of introducing CES-type production functions in macroeconomic models.

Keywords: Balanced growth; production technique; biased technology; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: E25 O33 O40 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-fdg and nep-mac
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Citations: View citations in EconPapers (14)

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