CAPITAL–LABOR SUBSTITUTION, SECTOR-SPECIFIC EXTERNALITIES, AND INDETERMINACY

Nopphawan Photphisutthiphong and Mark Weder

Macroeconomic Dynamics, 2012, vol. 16, issue S3, 411-421

Abstract: This paper examines the effect of the elasticity of technological substitution on the existence of equilibrium indeterminacy in two-sector economies. Following recent empirical evidence, the elasticity of substitution between capital and labor is below unity and we find that this requires a higher degree of productive externalities in order to still be able to produce indeterminate equilibria. However, empirically realistic rates of substitution do not rule out indeterminacy.

Date: 2012
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Working Paper: Capital-Labor Substitution, Sector-Specific Externalities and Indeterminacy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:16:y:2012:i:s3:p:411-421_00

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