Factor substitution, long‐run growth, and speed of convergence in the one‐sector convex endogenous‐growth model

Manuel Gómez

Metroeconomica, 2020, vol. 71, issue 1, 2-21

Abstract: We study the link between the elasticity of factor substitution, long‐run growth and the speed of convergence in the one‐sector convex growth model. Technology is such that the marginal product of capital is bounded away from zero leading to endogenous growth. In particular, we consider the CES, VES and Sobelow production functions. We show that for two economies differing uniquely in initial factor substitutability, the economy with the higher initial elasticity of substitution will feature a higher long‐run growth rate and a higher speed of convergence, irrespective of the specification of the production function.

Date: 2020
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