Steady-state growth and the elasticity of substitution

Andreas Irmen (1)

1 Faculty of Law

In a neoclassical economy with endogenous capital- and labor-augmenting technical change the steady-state growth rate of output per worker is shown to increase in the elasticity of substitution between capital and labor. This confirms the assessment of Klump and de La Grandville (2000) that a greater elasticity of substitution allows for faster of economic growth. However, unlike their findings my result applies to the steady-state growth rate. Moreover, it does not hinge on particular assumptions on how aggregate savings come about. It holds for any household sector allowing savings to grow at the same rate as aggregate output.

Mots clés: E22; O11; O33; O41; Capital Accumulation; Elasticity of Substitution; Direction of Technical Change; Neoclassical Growth Model

Domaines: Économie et finance quantitative [q-fin]

Andreas Irmen. Steady-state growth and the elasticity of substitution. Journal of Economic Dynamics and Control, 2011, ⟨10.1016/j.jedc.2011.04.002⟩. ⟨hal-00828979⟩