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A Growth Framework Using the Constant Elasticity of Substitution Model

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Document pages: 13 pages

Abstract: Some results in growth theory based on the Cobb-Douglas production function model are generalized when the production function is chosen to be the Constant Elasticity of Substitution (CES) function. Such a generalization is of considerable interest because it is known that the Cobb-Douglas function cannot be used as a suitable model for some production technologies (like the US economy and climate changes). It is shown that in the steady state the growth rate of the output is equal to the Solow residual and that the capital deepening term becomes zero. The CES function is a homogeneous function of degree two and a result is obtained on the wage of a worker using the Euler’s theorem.

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