Production Functions with Variable Elasticity of Factor Substitution: Some Analysis and Testing

1968 ◽  
Vol 50 (4) ◽  
pp. 453 ◽  
Author(s):  
Ryuzo Sato ◽  
Ronald F. Hoffman
2018 ◽  
Vol 30 (3) ◽  
pp. 385-407 ◽  
Author(s):  
Feng Wang ◽  
Yijie Jiang ◽  
Wulin Zhang ◽  
Fang Yang

Based on the translog cost function and factor substitution theory, the input and output data from China’s industrial sector and the three sub-sectors during the period 1984–2011 are firstly used to calculate substitution elasticity among capital, labor, energy, and intermediate input. And then from the perspective of factor substitution, the driving factors of energy intensity in China’s industry are explored. The main findings introduced in this paper are listed as follows: firstly, the production of China’s industrial sector is sensitive to changes of energy and labor prices; secondly, except the complementary relationships between energy and labor in the manufacturing industry, and between energy and intermediate input in electricity, gas, and water industry, substitution relationships exist among all other factors; thirdly, the budget constraint of energy consumption is the most effective impetus to the reduction of energy intensity in industrial sector, and factor substitution especially the substitution of capital and labor for energy has an important role in the reduction of energy intensity; fourthly, the rapid expansion of economic scale causes output effect to become the biggest factor of impeding the reduction of energy intensity; fifthly, technical progress has different effects on energy intensities in different industrial sub-sectors, but generally speaking, technical progress does not promote the reduction of energy intensity.


2016 ◽  
Vol 22 (1) ◽  
pp. 63-76
Author(s):  
Rainer Klump ◽  
Anne Jurkat

In this paper, we examine the influence of monetary policy on the speed of convergence in a standard monetary growth model à la Sidrauski allowing for differences in the elasticity of substitution between factors of production. The respective changes in the rate of convergence and its sensitivities to the central model parameters are derived both analytically and numerically. By normalizing the constant elasticity of substitution (CES) production functions both outside the steady state and within the steady state, it is possible to distinguish between an efficiency and a distribution effect of a change in the elasticity of substitution. We show that monetary policy is the more effective, the lower is the elasticity of substitution, and that the impact of monetary policy on the speed of convergence is mainly channeled via the efficiency effect.


2020 ◽  
Vol 13 (2) ◽  
pp. 21 ◽  
Author(s):  
Nguyen Ngoc Thach

Most studies in Vietnam use the Cobb-Douglas production function and its modifications for economic analysis. Extremely rigid presumptions are a main weak point of this functional form, particularly if the elasticity of factor substitution (ES) is equal to one, which hides the role of the ES for economic growth. The CES (constant elasticity of substitution) production function with more flexible presumptions, concretely its ES, is not unitary, and has been used more and more widely in economic investigations. So, this study is conducted to estimate the average ES through the specification of an aggregate CES function for the Vietnamese nonfinancial enterprises. By performing Bayesian nonlinear mixed-effects regression via Random-walk Metropolis Hastings (MH) algorithm, based on the data set of the listed nonfinancial enterprises of Vietnam, the author found that the CES function estimated for the researched enterprises has an ES lower than one, i.e., capital and labor are complimentary. This finding shows that Vietnamese nonfinancial enterprises can confront a downward trend of output growth.


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