Biased Technical Change and Capital-Labour Substitution in Finland, 1902-2003

Jukka Jalava (), Pohjola Matti (), Antti Ripatti and Jouko Vilmunen
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Pohjola Matti: Helsinki School of Economics

The B.E. Journal of Macroeconomics, 2006, vol. 6, issue 1, 1-20

Abstract: The paper argues that a Cobb-Douglas specification may be a reasonable description of the Finnish aggregate production function when a sufficiently long time period (the 20th century) is considered. It is, however, a misleading description of the production technology for the post-WWII period. Controlling for biased technical change, the elasticity of substitution is significantly below one, close to 0.5, during 1945-2003. Given that similar results have been obtained for the U.S. economy, the analysis shows that the value of the elasticity of substitution cannot be dependent on some specific structure of economic institutions but is likely to reflect more general aspects of technology and production.

Keywords: capital-labour substitution; elasticity of substitution; technical change (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (25)

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DOI: 10.2202/1534-5998.1328

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