Article ID Journal Published Year Pages File Type
7372641 Mathematical Social Sciences 2018 9 Pages PDF
Abstract
We study the link between the elasticity of factor substitution and economic growth in the Ramsey-Cass-Koopmans model with elastic labor supply and normalized CES production. If the baseline value of capital per unit of effective labor is below its steady-state value, an increase in the elasticity of substitution generates a higher steady-state income, capital and consumption per capita. This is due to the combination of a positive efficiency effect of a higher elasticity of substitution and a positive distribution effect. However, the effect of a higher elasticity of substitution on these variables along the transition is ambiguous.
Related Topics
Physical Sciences and Engineering Mathematics Applied Mathematics
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