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We estimate the elasticity of substitution between capital and labor for a large panel consisting of 100 countries over the period 1970-2007. In non-linear specifications, we find that the elasticity of substitution is unitary when the labor input is uncorrected for schooling differences across countries. However, when the labor input is corrected for schooling differences the elasticity of substitution is greater than one, invalidating the Cobb-Douglas assumption. In linear specifications, we find that the elasticity of substitution is lower than one, whether or not labor is corrected for cross-country differences. Furthermore, estimates from alternatives panels and additional tests, such as the estimation of a Translog production function confirm our initial findings, that is, that the elasticity of substitution differs from unity. Implications and extensions of our dataset and methodology are explored. In particular, we generate estimates of the elasticity of substitution between skilled and unskilled labor.

Another Look at Panel Estimates of the Elasticity of Substitution between Capital and Labor