Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor

Some recent work on economic growth considers the aggregate elasticity of substitution between capital and labor as a measure of economic flexibility. It is thought to depend on technological and institutional determinants. I study how a openness to trade affects the aggregate elasticity of substitution of a large country in a Heckscher-Ohlin model with trade in intermediates and equalization of factor prices. With constant capital stocks, trade enlarges the set of available intermediates in the same way as a rise in the elasticity of substitution in their production would. An optimal tariff corresponds to an additional rise in the elasticity of substitution. In two growing economies, trade only rises the elasticity of substitution of the GDP function of the faster growing country.aggregate elasticity of substitution, normalization, Heckscher-Ohlin model, capital accumulation

Distributional Effects of Growth and the Elasticity of Substitution

Reforms that promote economic growth have also an impact on the distribution of capital and income. This paper considers the effect of a rise in the elasticity of substitution between capital and labor. It uses the normalized CES function introduced by Klump and de La Grandville. A reform that raises the elasticity of substitution may have an immediate impact on wages. Dynamic effects are studied in the Ramsey model with heterogenous agents by Caselli and Ventura. Two results on a trade-off between growth and equality are obtained: First, divergence in the capital distribution may occur during growth if a low elasticity of substitution is combined with a high profit share or high risk aversion. Simulations show that a small rise in the elasticity of substitution may reinforce this divergence. Second, a higher elasticity of substitution leads to higher income in the future for the whole population, but sometimes at the cost of an absolute decline in present wages. The existence of a trade-off between growth and equality depends crucially on the choice of the point of normalization.

Productivity of ICT and non-ICT capital: The role of rates of return and capital prices

We investigate the role rates of return and rates of asset price decline play in explaining sources of productivity growth in the context of a growth accounting approach. Our analysis is based on data from the EU KLEMS database for seven countries in the period of 1990 - 2007. We introduce a constant rate of return to capital and a constant rate of ICT price decline across sectors, countries and time. The main result of this sensitivity analysis is that both alternative measurements somewhat downplay the role investment played relative to growth in multi-factor productivity in the UK and the US during 1995 - 2000. Moreover, we show that more than half of the ICT contribution to labor productivity growth results from growth in capital quality and composition rather than quantity. --ICT capital,asset prices,rates of return,growth accounting

Calibration of normalised CES production functions in dynamic models

Normalising CES production functions in the calibration of basic dynamic models allows to choose technology parameters in an economically plausible way. When variations in the elasticity of substitution are considered, normalisation is necessary in order to exclude arbitrary effects. As an illustration, the effect of the elasticity of substitution on the speed of convergence in the Ramsey model is computed with different normalisations. --CES production functions,normalisation,calibration,Ramsey model

The identification of directed technical change revisited

Technical change that augments capital and labor input in a non-neutral way plays an important role in explaining the relation between growth and other macroeconomic outcomes. Previous research has shown that restricting technical change to be neutral leads to overestimating the elasticity of substitution between capital and labor. I extend this line of analysis to misspecification of the functional form. Evidence from Monte Carlo simulations shows that the problem of biased estimates of the direction of technical change is relevant in the estimation of aggregate CES and translog production functions. In particular, I find examples where true technical change is neutral and estimated technical change is strongly directed towards one factor

Noncognitive skills, school achievements and educational dropout

We analyse the determinants of dropout from secondary and vocational education in Germany using data from the Socio-Economic Panel from 2000 to 2007. In addition to the role of classical variables like family background and school achievements, we examine the effect of noncognitive skills. Both, better school grades and higher noncognitive skills reduce the risk to become an educational dropout. The influence of school achievements on the dropout probability tends to decrease and the influence of noncognitive skills tends to increase with age. --Noncognitive skills,school grades,secondary education,vocational training

Noncognitive Skills, School Achievements and Educational Dropout (Revised Version)

We analyse the determinants of dropout from secondary and vocational education in Germany using data from the Socio-Economic Panel from 2000 to 2007. In addition to the role of classical variables like family background and school achievements, we examine the effect of noncognitive skills. Both, better school grades and higher noncognitive skills reduce the risk of becoming an educational dropout. The influence of school achievements on the dropout probability tends to decrease and the influence of noncognitive skills tends to increase with age.Noncognitive skills, school grades, secondary education, vocational training

Noncognitive Skills, School Achievements and Educational Dropout

We analyse the determinants of dropout from secondary and vocational education in Germany using data from the Socio-Economic Panel from 2000 to 2007. In addition to the role of classical variables like family background and school achievements, we examine the effect of noncognitive skills. Both, better school grades and higher noncognitive skills reduce the risk to become an educational dropout. The influence of school achievements on the dropout probability tends to decrease and the influence of noncognitive skills tends to increase with age.Noncognitive skills, school grades, secondary education, vocational training