Appropriate technology and balanced growth

Arbeitspapier

We provide a general theoretical characterization of how firms' technology choice on a technology frontier determines the long-run elasticity of substitution between capital and labor. We show that the shape of the frontier determines factor shares and the elasticity of substitution between capital and labor. If there are adjustment costs to technology choice, the short- and long-run elasticities differ, with the long-run always higher. If the technology frontier is log-linear, the production function becomes Cobb-Douglas in the long run but, consistent with empirical evidence, short-run dynamics are characterized by gross complementarity. The approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of our production technology provides a good match for the short- and medium-run behavior of the US labor share.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: School of Economics Discussion Papers ; No. 1614

Classification and Topics

• Classification: Wirtschaft ; Aggregate Factor Income Distribution ; Technological Change: Choices and Consequences; Diffusion Processes ; Economic Growth and Aggregate Productivity: General
• Subject: Balanced growth ; appropriate technology ; elasticity of substitution

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): León-Ledesma, Miguel A. ; Satchi, Mathan
• Event: Veröffentlichung
• (who): University of Kent, School of Economics
• (where): Canterbury
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/175511
• Last update: 10.03.2025, 11:44 AM CET