The elasticity of substitution as an engine of growth

Theodore Palivos and Giannis Karagiannis

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper characterizes the elasticity of factor substitution in one-sector convex growth models with a general production function. It shows that an elasticity of substitution that is asymptotically greater than one is a sufficient (but not a necessary) condition for the existence of a lower bound on the marginal product of capital, which in turn can lead to unbounded endogenous growth. Hence, an elasticity of substitution that becomes eventually greater than one can counteract the role of diminishing returns to capital. This renders factor substitution a powerful engine of growth.

Keywords: Elasticity of Substitution; Endogenous Growth; Convex Models (search for similar items in EconPapers)
JEL-codes: O11 O40 (search for similar items in EconPapers)
Date: 2007-12, Revised 2007-12
New Economics Papers: this item is included in nep-dev and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: THE ELASTICITY OF SUBSTITUTION AS AN ENGINE OF GROWTH (2010)
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