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The Solow model with CES technology: nonlinearities and parameter heterogeneity
Author(s) -
Masanjala Winford H.,
Papageorgiou Chris
Publication year - 2004
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.722
Subject(s) - constant elasticity of substitution , economics , production (economics) , production function , econometrics , function (biology) , elasticity of substitution , aggregate (composite) , growth model , output elasticity , constant (computer programming) , mathematical economics , microeconomics , computer science , materials science , evolutionary biology , programming language , composite material , biology
This paper examines whether nonlinearities in the aggregate production function can explain parameter heterogeneity in the Solow growth regressions. Nonlinearities in the production technology are introduced by replacing the commonly used Cobb–Douglas (CD) aggregated production specification with the more general Constant‐Elasticity‐of‐Substitution (CES) specification. We first justify our choice of production function by showing that cross‐country regressions favour the CES over the CD technology. Then, by using an endogenous threshold methodology we show that the Solow model with CES technology is consistent with the existence of multiple regimes. Copyright © 2004 John Wiley & Sons, Ltd.