Factor substitution and convergence speed in the neoclassical model with elastic labor supply

We study the link between factor substitutability and the speed of convergence in the Ramsey–Cass–Koopmans model with elastic labor supply and normalized CES production. If the baseline value of capital per unit of effective labor is below its steady-state value, an increase in the elasticity of sub...

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Bibliographic Details
Published inEconomics letters Vol. 172; pp. 89 - 92
Main Author Gómez, Manuel A.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.11.2018
Elsevier Science Ltd
Subjects
Convergence
Convergence speed
Elastic labor supply
Elasticity
Elasticity of substitution
Impact analysis
Labor supply
E21
O41
Elasticity of substitution
Elastic labor supply
Convergence speed
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Summary:We study the link between factor substitutability and the speed of convergence in the Ramsey–Cass–Koopmans model with elastic labor supply and normalized CES production. If the baseline value of capital per unit of effective labor is below its steady-state value, an increase in the elasticity of substitution reduces the convergence speed. •I examine the effect of factor substitution on the speed of convergence.•I consider the Ramsey model with elastic labor supply.•Negative link if the baseline effective capital is below its steady state.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2018.08.040