Elasticity of substitution and the slowdown of the Italian productivity

Enrico Saltari and Daniela Federici

MPRA Paper from University Library of Munich, Germany

Abstract: In Saltari et al. (2012, 2013) we estimated a dynamic model of the Italian economy. The main result of those papers is that the weakness of the Italian economy in the last two decades has been the total factor productivity slowdown. The aim of this paper is to investigate the roots of this slowdown. Specifically, we want to analyze the specific pattern of technical progress in determining the TFP dynamics. This analysis can not be done with the Cobb-Douglas technology but requires the employ of a CES function which allows to distinguish between the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capital-augmenting technical change, with a σ less than 1. We obtain three main results. 1) There seems to have been a structural break around the mid-nineties in the direction and bias of technological change; 2) The first half of the sample features a labor-augmenting technical change and a capital bias; 3) In the second part of the sample both these characteristics seem to disappear, and factor endowments evolution assumes a key role. This last fact may be view as one of the potential causes of the Italian productivity stagnation.

Keywords: CES production function; Elasticity of substitution; Factor-augmenting technical progress and ICT technical change (search for similar items in EconPapers)
JEL-codes: C30 E22 E23 O33 (search for similar items in EconPapers)
Date: 2014-09-03
New Economics Papers: this item is included in nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Elasticity of substitution and the slowdown of the Italian productivity (2014)
Working Paper: Elasticity of substitution and the slowdown of Italian productivity (2014)
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