Capital-Labor Substitution, Sector-Specific Externalities and Indeterminacy

Nopphawan Photphisutthiphong and Mark Weder
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Nopphawan Photphisutthiphong: Rajamangala University of Technology, Thanyaburi

No 2009-36, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: This paper examines the effect of the elasticity of technological substitution on the existence of equilibrium indeterminacy in two-sector economies. Recent empirical evidence, the elasticity of substitution between capital and labor is below unity. We ?nd that this requires a higher degree of productive externalities in order to still be able to produce indeterminate equilibria. However, indeterminacy is maintained for empirically realistic rates of substitution.

Keywords: sunspots; two-sector models; indeterminacy; CES production functions; externalities (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2009
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Journal Article: CAPITAL–LABOR SUBSTITUTION, SECTOR-SPECIFIC EXTERNALITIES, AND INDETERMINACY (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2009-36

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