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CAPITAL–LABOR SUBSTITUTION, SECTOR-SPECIFIC EXTERNALITIES, AND INDETERMINACY

Published online by Cambridge University Press:  22 August 2012

Nopphawan Photphisutthiphong  and
Mark Weder
Nopphawan Photphisutthiphong
Affiliation:
Rajamangala University of Technology Thanyaburi
Mark Weder*
Affiliation:
University of Adelaide
*
Address correspondence to: Mark Weder, School of Economics, University of Adelaide, Adelaide, SA 5005, Australia; e-mail: mark.weder@adelaide.edu.au.
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Abstract

This paper examines the effect of the elasticity of technological substitution on the existence of equilibrium indeterminacy in two-sector economies. Following recent empirical evidence, the elasticity of substitution between capital and labor is below unity and we find that this requires a higher degree of productive externalities in order to still be able to produce indeterminate equilibria. However, empirically realistic rates of substitution do not rule out indeterminacy.

Keywords

Two-Sector ModelsIndeterminacyCES Production FunctionsExternalities
Type
Notes
Information
Macroeconomic Dynamics , Volume 16 , Supplement S3 , November 2012 , pp. 411 - 421
Copyright
Copyright © Cambridge University Press 2012

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