Factor substitution, long-run equilibrium, and convergence speed in the Lucas model

Manuel Gómez

Economics Letters, 2023, vol. 232, issue C

Abstract: We study the effect of factor substitution on long-run equilibrium in the Lucas model with CES production. The long-run growth rate does not depend on the elasticity of substitution. However, there is a negative (positive) relationship between the elasticity of factor substitution and the convergence speed if the baseline ratio of physical capital to effective labor is below (above) its steady-state value.

Keywords: Elasticity of substitution; Endogenous growth; Convergence speed; Human capital (search for similar items in EconPapers)
JEL-codes: E21 O41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:232:y:2023:i:c:s016517652300383x

DOI: 10.1016/j.econlet.2023.111358

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