Aggregate elasticity of substitution and economic growth: A synthesis

Jianpo Xue and Chong Yip

Journal of Macroeconomics, 2013, vol. 38, issue PA, 60-75

Abstract: This paper examines the relation between aggregate elasticity of substitution (AES) and capital accumulation (the AES-K relation) in a two-level, two-sector Solow growth model. There are two intermediate goods produced by capital and labor, while the final good is produced by combining the two intermediate goods. When capital (labor) is only used in producing one of the intermediate goods, then a negative (positive) AES-K relation is the likely outcome. Without specific factors in production, then we have to differentiate the concepts of “global” versus “local” AES-K relation. While the local AES-K relation is possibly monotone, the global AES-K relation is always non-monotone. When the intermediate goods are gross substitutes (complements) in the final-good production, the global AES-K relation is hump- (U-) shaped.

Keywords: Aggregate elasticity of substitution (AES); Normalized CES production function; Global and local AES-capital relations (search for similar items in EconPapers)
JEL-codes: E23 O41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070413001110
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Aggregate Elasticity of Substitution and Economic Growth: A Synthesis (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:38:y:2013:i:pa:p:60-75

DOI: 10.1016/j.jmacro.2013.07.001

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().