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Title:The choice of CES production techniques and balanced growth PDF Logo
Authors:León-Ledesma, Miguel A.
Satchi, Mathan
Issue Date:2011
Series/Report no.:School of Economics discussion papers 11,13
Abstract:We show that allowing firms a choice of CES production techniques (via the distribution parameter between capital and labor) can result in a new class of production functions that produces short-run capital-labor complementarity but yields a long-run unit elasticity of substitution. This is shown to occur if we provide a mathematical framework for this choice that maintains strict essentiality of the production process and satisfies the requirement of unit-invariance. The class of production functions derived are consistent with a balanced growth path even in the presence of capital-augmenting technical progress. The approach yields a simple yet powerful way of introducing CES-type production functions in macroeconomic models.
Subjects:balanced growth
production technique
biased technology
elasticity of substitution
JEL:E25
O33
O40
Document Type:Working Paper
Appears in Collections:School of Economics Discussion Papers, University of Kent

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