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Elasticity of substitution and the slowdown of Italian productivity

Daniela Federici () and Enrico Saltari ()

No 166, Working Papers from University of Rome La Sapienza, Department of Public Economics

Abstract: The aim of this paper is to investigate the roots of the slowdown in the Italian total factor productivity (TFP). The analysis focusses on the specific pattern of technical progress in determining the dynamics of the TFP. This analysis can not be done with Cobb—Douglas technology but requires the employment of a CES function that allows distinguishingbetween the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capitalaugmentingtechnical change, with a  less than 1. We obtain three main results. 1) There seems to have been a structural break around the mid-1990s 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 the evolution of factor endowments assumes a key role. This fact may be seen as one of the potential causes of the stagnation in Italian productivity.

Keywords: CES production function; Elasticity of substitution; Factor-augmenting technical progress and ICT technical change (search for similar items in EconPapers)
JEL-codes: C30 E E23 O33 (search for similar items in EconPapers)
Pages: 15
Date: 2014-11
New Economics Papers: this item is included in nep-eff and nep-mac
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Working Paper: Elasticity of substitution and the slowdown of the Italian productivity (2014) Downloads
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