Two-level CES Production Technology in the Solow and Diamond Growth Models

Chris Papageorgiou () and Marianne Saam

Scandinavian Journal of Economics, 2008, vol. 110, issue 1, pages 119-143

Abstract: The two-level CES aggregate production function-that nests a CES into another CES function-has recently been used extensively in theoretical and empirical applications of macroeconomics. We examine the theoretical properties of this production technology and establish existence and stability conditions of steady states under the Solow and Diamond growth models. It is shown that in the Solow model the sufficient condition for a steady state is fulfilled for a wide range of substitution parameter values. This is in sharp contrast with the two-factor Solow model, where only an elasticity of substitution equal to one is sufficient to guarantee the existence of a steady state. In the Diamond model, multiple equilibria can occur when the aggregate elasticity of substitution is lower than the capital share. Moreover, it is shown that for high initial levels of capital and factor substitutability, the effect of a further increase in a substitution parameter on the steady state depends on capital-skill complementarity. Copyright © The editors of the "Scandinavian Journal of Economics" 2008 .

Date: 2008

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2008.00529.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Two-Level CES Production Technology in the Solow and Diamond Growth Models
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:scandj:v:110:y:2008:i:1:p:119-143

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is edited by Jonas Agell, Nils Gottfries and Espen R. Moen

More articles in Scandinavian Journal of Economics from Blackwell Publishing
Series data maintained by Christopher F. Baum ().