The Elasticity of Substitution Between Capital and Labour in the US Economy: A Meta‐Regression Analysis

Michael Knoblach, Martin Roessler and Patrick Zwerschke

Oxford Bulletin of Economics and Statistics, 2020, vol. 82, issue 1, 62-82

Abstract: Despite extensive research, there is no agreement on the value of the elasticity of substitution between capital and labour at the aggregate or the industrial level. Utilizing 2,419 estimates from 77 studies published between 1961 and 2017, this paper provides the first meta‐regression analysis for the US economy. We show that the heterogeneity in previously reported estimates is driven primarily by modelling decisions for technological dynamics. Throughout the analysis, the hypothesis of a Cobb–Douglas production function is rejected. Based on our meta‐regression sample, we estimate a long‐run meta‐elasticity for the aggregate economy in the range of 0.45–0.87. Most industrial estimates do not deviate significantly from the estimate for the aggregate economy.

Date: 2020
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