Multifactor CES general equilibrium: Models and applications

•Sector-specific CES elasticities are estimated using linked input-output tables.•The jointly measured productivity changes are comparable to Tornqvist indexes.•We calibrate multifactor CES general equilibrium models with estimated elasticities.•We evaluate the economic welfare gain by the exogenous productivity improvements.

Sector-specific multifactor CES elasticities of substitution and the corresponding productivity growth are jointly measured by regressing the growth of per-factor cost shares against the growth of factor prices. We use linked input-output tables for Japan and the Republic of Korea as the data source for factor price and cost shares in two temporally distant states. We then construct a multisectoral general equilibrium model using the system of estimated CES unit cost functions and evaluate the economy-wide propagation of an exogenous productivity stimulus in terms of welfare. Further, we examine the differences between models based on a priori elasticities such as Leontief and Cobb-Douglas.