Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222711 
Authors: 
Year of Publication: 
2019
Series/Report no.: 
ADBI Working Paper Series No. 944
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
The constancy of the elasticity of factor substitution (σ) makes its role as a driver of the labor income share exogenous. The constant elasticity of substitution (CES) (Arrow et al., 1961) production function has predominantly been used to support this causal relationship. This paper argues that (i) capital-labor ratio determines the value of σ, and (ii) both capital-labor ratio and σ vary over time. I use a variable elasticity of substitution (VES) production framework that allows both labor income share and σ to change over time. Statistically significant empirical support is provided using the Japanese industrial productivity (JIP) data. This suggests that the CES model may not be an ideal choice to examine the factor income share dynamics.
Subjects: 
substitution elasticity
labor income share
production function parameters
JEL: 
E21
E22
E25
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

Files in This Item:
File
Size





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