The Long and Short of it

37 Pages Posted: 27 Feb 2008

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 1, 2008

Abstract

Research on the elasticity of substitution between capital and labor - à3C3 - has been proceeding for 75 years. While there is clearly a strong case for the importance of à3C3 in the analysis of growth and other economic issues, much less agreement exists on the value of à3C3. This paper offers some perspectives on prior estimates of à3C3, emphasizing the fundamental tension between the short-run data that are available and the long-run parameter that is required. Estimates of à3C3 based on various short-run and long-run models are discussed and, while the estimates range widely, the weight of the evidence suggests a value of à3C3 in the range of 0.40 to 0.60. There is little evidence to sustain the assumption of a Cobb-Douglas production function.

Keywords: production, function, capital formation, economic growth, estimating long-run relations

JEL Classification: E22, C20

Suggested Citation

Chirinko, Robert S., The Long and Short of it (February 1, 2008). CESifo Working Paper Series No. 2234. Available at SSRN: https://ssrn.com/abstract=1098827

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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