English, Article, Journal or magazine article edition: Identifying the elasticity of substitution with biased technical change. Miguel A. León-Ledesma; Peter McAdam; Alpo Willman

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Bookmark: http://trove.nla.gov.au/version/66676
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Identifying the elasticity of substitution with biased technical change.
Author
  • Miguel A. León-Ledesma
  • Peter McAdam
  • Alpo Willman
Physical Description
  • preprint
Notes
  • RePEc:ecb:ecbwps:200901001
  • Despite being critical parameters in many economic fields, the received wisdom, in theoretical and empirical literatures, states that joint identification of the elasticity of capital-labor substitution and technical bias is infeasible. This paper challenges that pessimistic interpretation. Putting the new approach of "normalized" production functions at the heart of a Monte Carlo analysis we identify the conditions under which identification is feasible and robust. The key result is that the jointly modeling the production function and first-order conditions is superior to single-equation approaches in terms of robustly capturing production and technical parameters, especially when merged with "normalization". Our results will have fundamental implications for production-function estimation under non-neutral technical change, for understanding the empirical relevance of normalization and the variability underlying past empirical studies. JEL Classification: C22, E23, O30, 051.
  • Constant Elasticity of Substitution, Factor-Augmenting Technical Change, Normalization, Factor Income share, Identification, Monte Carlo.
Language
  • English
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