Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30814 
Authors: 
Year of Publication: 
2007
Series/Report no.: 
Volkswirtschaftliche Diskussionsreihe No. 295
Publisher: 
Universität Augsburg, Institut für Volkswirtschaftslehre, Augsburg
Abstract: 
Empirical studies show that the elasticity of substitution between capital and labor is larger than one in developed countries but smaller in developing countries. This paper develops a production function which allows for this structure in the elasticity of substitution. The case of a falling real interest rate and capital deepening in the developed countries in the presence of FDI flows from the developed to the developing country is analyzed. It is shown that this structure in the elasticity of substitution can be responsible for a U-shaped relationship between the capital intensity of the developed country and the relative capital intensity of the developing country. This carries over to an inverted U-shaped relationship between the capital intensity of the developed country and FDI profitability.
Subjects: 
Capital/Labor Substitution : FDI
Capital Deepening
JEL: 
E23
F21
O11
Document Type: 
Working Paper

Files in This Item:
File
Size
226.21 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.