The Elasticity of Substitution and Economic Growth Rate: What Linkage?
| Autor: | Özkaya, Ata |
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| Rok vydání: | 2015 |
| Předmět: | |
| Zdroj: | Volume: 8, Issue: 2 1-9 Florya Chronicles of Political Economy |
| ISSN: | 2717-7629 2149-5750 |
| DOI: | 10.17932/iau.fcpe.2015.010/fcpe_v08i2001 |
| Popis: | We reconsider the effect of elasticity of substitution on: income per-capita, growth rate of capital-labor ratio, growth rate of income per-capita, the steady-state capital-labor ratio and the steady-state income per-capita, respectively. We demonstrate that: first, both income per-capita and growth rate of capital-labor ratio are decreasing functions of elasticity of substitution. Second, we find out that an increase in substitution elasticity leads to an increase or a decrease in the growth rate of income per-capita depending on initial-terminal conditions of the production function. Moreover, we demonstrate that at steady-state an increase in elasticity of substitution decreases both growth rate of capital-labor ratio and growth rate of income per- capita. Finally, we revise the erroneous result that there is a threshold of elasticity of substitution for which there is no steady-state equilibrium and for which ever-sustained growth is entailed. Instead, as a policy instrument increasing the minimum marginal product of labor is demonstrated to increase the growth rate of income per-capita. |
| Databáze: | OpenAIRE |
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