Multifactor CES Elasticity and Productivity Growth:A Cross-Sectional Approach

Discussion Papers

No.632

by Jiyoung KIM, Satoshi NAKANO, Kazuhiko NISHIMURA

March 2017

ABSTRACT

Sector-wise productivity growth is measured, along with the sectoral elasticity of substitution, under the multifactor CES framework by regressing the growth of factor-wise cost shares against the growth of relative factor prices. We use linked input–output tables for Japan and Korea as the data sources for factor price and cost shares in two temporally distant states. We then construct a multisectoral general equilibrium model using the system of estimated CES unit cost functions and evaluate the economy-wide distribution of exogenous productivity gains in terms of welfare. Further, we examine the differences between models based on a priori elasticities such as the Leontief and the Cobb–Douglas systems.

Keywords: Productivity Growth, Multi-Factor CES, Elasticity of Substitution, General Equilibrium, Linked Input-Output Tables
JEL classification: D24, D57, D58

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