The effects of globalization and technology on the elasticity of substitution
Hector Sala and
Pedro Trivin ()
Review of World Economics (Weltwirtschaftliches Archiv), 2018, vol. 154, issue 3, 617-647
Abstract The elasticity of substitution between capital and labor ( $$\sigma$$ σ ) is usually considered a “deep parameter”. This paper shows, in contrast, that $$\sigma$$ σ is affected by both globalization and technology, and that different intensities in these drivers have different consequences for the OECD and the non-OECD economies. In the OECD, we find that the elasticity of substitution between capital and labor is below unity; that it increases along with the degree of globalization; but it decreases with the level of technology. Although results for the non-OECD area are more heterogeneous, we find that technology enhances the substitutability between capital and labor. We also find evidence of a non-significant impact of the capital-output ratio on the labor share irrespective of the degree of globalization (which would be consistent with an average aggregate Cobb–Douglas technology). Given the relevance of $$\sigma$$ σ for economic growth and the functional distribution of income, the intertwined linkage among globalization, technology and the elasticity of substitution should be taken into account in any policy makers’ objective function.
Keywords: Labor share; Capital-output ratio; Elasticity of substitution; Globalization; Technology (search for similar items in EconPapers)
JEL-codes: E25 F62 E22 O33 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10290-018-0315-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
Working Paper: The Effects of Globalization and Technology on the Elasticity of Substitution (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spr:weltar:v:154:y:2018:i:3:d:10.1007_s10290-018-0315-7
Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10290/PS2
Access Statistics for this article
Review of World Economics (Weltwirtschaftliches Archiv) is currently edited by Paul Bergin, Holger Görg, Cédric Tille and Gerald Willmann
More articles in Review of World Economics (Weltwirtschaftliches Archiv) from Springer, Institut für Weltwirtschaft (Kiel Institute for the World Economy) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().