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Variable elasticity of substitution and economic growth in the neoclassical model

Manuel Gómez

Studies in Nonlinear Dynamics & Econometrics, 2021, vol. 25, issue 5, 345-364

Abstract: We study the effect of factor substitutability in the neoclassical growth model with variable elasticity of substitution. We consider two otherwise identical economies differing uniquely in their initial factor substitutability with Variable-Elasticity-of-Substitution (VES), Sobelow or Sigmoidal technologies. If the initial capital per capita is below its steady-state value, the economy with the higher initial elasticity of substitution will feature a higher steady-state income and capital per capita irrespective of whether the production technology is VES, Sobelow or Sigmoidal. Numerical results are provided to compare the effect of a higher elasticity of substitution in the Constant-Elasticity-of-Substitution (CES) model versus the models with variable-elasticity-of-substitution technology.

Keywords: economic growth; elasticity of substitution; neoclassical growth (search for similar items in EconPapers)
JEL-codes: E21 O41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/snde-2019-0145

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