Production Technology Estimates and Balanced Growth

Oxford Bulletin of Economics and Statistics - Tập 77 Số 1 - Trang 40-65 - 2015
Miguel A. León‐Ledesma1, Peter McAdam2,3, Alpo Willman4,1
1School of Economics University of Kent, Keynes College Canterbury CT27NP UK
2Research Department European Central Bank Frankfurt am Main D-60311 Germany
3School of Economics, University of Surrey, Guildford GU2 7XH, UK
4Research Department European Central Bank Frankfurt am Main D‐60311 Germany

Tóm tắt

AbstractCapital‐labour substitution and total factor productivity (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 favour 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.

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Oxford Bulletin of Economics and Statistics

Tập 77 Số 1

40-65

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