Estimation of Sectoral Elasticities of Substitution Along the International Technology Frontier

28 Pages Posted: 14 Nov 2013

See all articles by Claudio Baccianti

Claudio Baccianti

Tilburg University - Tilburg University School of Economics and Management

Date Written: November 1, 2013

Abstract

Sectoral heterogeneity is crucial to address several economic questions. This paper provides a detailed mapping of sectoral production possibility frontiers, using different nesting structures and levels of aggregation (primary, secondary, tertiary activities and energy-intensive firms). Elasticities of substitution between capital, labour and energy are identified by employing an international multi-sector dataset, accounting for biased technological change and normalising the production function to clusters of observations. Complementarity dominates, with the noteworthy exception of the capital-labour composite, close to Cobb-Douglas. I also present some stylized facts relating substitution elasticities to sectoral characteristics.

Keywords: Constant Elasticity of Substitution, Normalisation, Sectoral Disaggregation, Nested CES Structure, Energy Demand

JEL Classification: C68, O14, O41, Q43

Suggested Citation

Baccianti, Claudio, Estimation of Sectoral Elasticities of Substitution Along the International Technology Frontier (November 1, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-092, Available at SSRN: https://ssrn.com/abstract=2353824 or http://dx.doi.org/10.2139/ssrn.2353824

Claudio Baccianti (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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