Non-Balanced Growth and Production Technology Estimation

Arbeitspapier

Capital-labor substitution and TFP estimates are essential features of many economic models. Such models typically embody a balanced growth path. This often leads researchers to estimate models imposing stringent prior choices on technical change. We demonstrate that estimation of the substitution elasticity and TFP growth can be substantially biased if technical progress is thereby mis-specified. We obtain analytical and simulation results in the context of a model consistent with balanced and near-balanced growth (i.e. departures from balanced growth but broadly stable factor shares). Given this evidence, a Constant Elasticity of Substitution production function system is then estimated for the US economy. Results show that the estimated substitution elasticity tends to be significantly lower using a factor-augmenting specification (well below one). We are also able to reject conventional neutrality forms in favor of general factor augmentation with a non-negligible capital-augmenting component. Our work thus provides insights into production and supply-side estimation in balanced-growth frameworks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: School of Economics Discussion Papers ; No. 1204

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Macroeconomics: Production ; Technological Change: Choices and Consequences; Diffusion Processes ; Economywide Country Studies: U.S.; Canada
• Subject: Balanced Growth ; Technical Progress Neutrality ; Factor Income share ; Constant Elasticity of Substitution ; Factor-Augmenting Technical Change

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): León-Ledesma, Miguel A ; McAdam, Peter ; Willman, Alpo
• Event: Veröffentlichung
• (who): University of Kent, School of Economics
• (where): Canterbury
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/105559
• Last update: 10.03.2025, 11:43 AM CET