Reference : The normalized CES production function: theory and empirics
Scientific journals : Other
Business & economic sciences : Multidisciplinary, general & others
http://hdl.handle.net/10993/27855
The normalized CES production function: theory and empirics
English
Klump, Rainer mailto [University of Luxembourg > Rectorate > Rectorate]
McAdam, Peter [Univ Surrey, Guildford GU2 5XH, Surrey, England.]
Willman, Alpo [> >]
2012
JOURNAL OF ECONOMIC SURVEYS
Wiley-Blackwell
26
5
769-799
Yes (verified by ORBilu)
0950-0804
Hoboken
[en] Constant Elasticity of Substitution Production Function ; Estimation ; Factor-Augmenting Technical Change ; Growth Theory ; Identification ; Normalization
[en] The elasticity of substitution between capital and labor and, in turn, the direction of technical change are critical parameters in many fields of economics. Until recently, though, the application of production functions with specifically non-unitary substitution elasticities (i.e., non-CobbDouglas) was hampered by empirical and theoretical uncertainties. As recently revealed, normalization of production-technology systems holds out the promise of resolving many of those uncertainties. We survey and assess the intrinsic links between production (as conceptualized in a production function), factor substitution (as made most explicit in Constant Elasticity of Substitution functions) and normalization (defined by the fixing of baseline values for relevant variables). First, we recall how the normalized Constant Elasticity of Substitution function came into existence and what normalization implies for its formal properties. Then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth. Next, we discuss the benefits normalization brings for empirical estimation and empirical growth research. Finally, we identify promising areas of future research.
http://hdl.handle.net/10993/27855
10.1111/j.1467-6419.2012.00730.x

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