Elasticity of Factor Substitution and Capital Formation in a Two-Sector Economy

Kazuo Mino

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the relationship between factor substitution in production and the steady-sate level of capital stock in a growing economy. Unlike the foregoing studies on this topic that have exclusively utilized one-sector growth models, we consider a two-sector economy where investment and consumption goods are produced by different technologies. We show that the relation between the elasticity of substation and the long-run capital formation critically depends on the factor-intensity ranking between the two sectors.

Keywords: elasticity of factor substitution; two sector model; factor intensity ranking; capital formation; CES production function; two-sector model; capital accumulation; factorintensity ranking (search for similar items in EconPapers)
JEL-codes: O11 O33 O41 (search for similar items in EconPapers)
Date: 2011-11-20
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