Journal Article

The long-term sucCESs of the neoclassical growth model

Rainer Klump, Peter McAdam and Alpo Willman

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 23, issue 1, pages 94-114
Published in print March 2007 | ISSN: 0266-903X
Published online January 2007 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grm003
The long-term sucCESs of the neoclassical growth model

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  • Single Equation Models; Single Variables
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In this paper, we seek to re-establish the link between the constant elasticity of substitution (CES) production function and neoclassical Solow growth theory. We do so in three dimensions. First, we review the increasing importance of the CES technology in modern dynamic macroeconomics, in expanding not only theory but also in addressing important policy questions. Second, we aue that the importance of the CES function in growth theory is intimately linked to ‘normalization’. Finally, we examine the data congruence between CES functions and recent growth patterns in the USA and the euro-area economies, where we apply a supply-side system incorporating a CES function with factor-augmenting and time-varying technical progress.

Keywords: Solow growth model; capital–labour substitution; technological change; factor shares; normalized CES function; supply-side system; United States; euro area; C22; E23; E25; 030; 051

Journal Article.  7992 words.  Illustrated.

Subjects: Single Equation Models; Single Variables ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment

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