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The role of capital‐labour substitution in economic growth

The role of capital‐labour substitution in economic growth Purpose – Although the importance of the elasticity of substitution between capital and labour (σ) has been recognized in many areas in economics, this parameter has not received enough attention in economic growth. The purpose of this paper is to review the recent development in the importance of σ in economic growth. Design/methodology/approach – This paper specifically reviews the possibility of perpetual growth and slowdown, and the asymptotic behaviour of the balanced growth path for different values of σ. It also reviews the determinants of the aggregate σ. Findings – Based on the empirical evidence that the value of σ significantly departs from the Cobb‐Douglas value of unity, the paper recommends employing the constant elasticity of substitution (CES) production function in both theoretical and empirical growth research. Originality/value – This paper offers a new perspective on the elasticity of substitution between capital and labour due to its evaluation of various factors, methods and approaches. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

The role of capital‐labour substitution in economic growth

Indian Growth and Development Review , Volume 5 (1): 13 – Apr 13, 2012

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References (44)

Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8254
DOI
10.1108/17538251211224150
Publisher site
See Article on Publisher Site

Abstract

Purpose – Although the importance of the elasticity of substitution between capital and labour (σ) has been recognized in many areas in economics, this parameter has not received enough attention in economic growth. The purpose of this paper is to review the recent development in the importance of σ in economic growth. Design/methodology/approach – This paper specifically reviews the possibility of perpetual growth and slowdown, and the asymptotic behaviour of the balanced growth path for different values of σ. It also reviews the determinants of the aggregate σ. Findings – Based on the empirical evidence that the value of σ significantly departs from the Cobb‐Douglas value of unity, the paper recommends employing the constant elasticity of substitution (CES) production function in both theoretical and empirical growth research. Originality/value – This paper offers a new perspective on the elasticity of substitution between capital and labour due to its evaluation of various factors, methods and approaches.

Journal

Indian Growth and Development ReviewEmerald Publishing

Published: Apr 13, 2012

Keywords: Economic growth; Capital; Labour; Elasticity of substitution; CES production function

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