Capital–labor substitution and balanced growth |
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Authors: | Debdulal Mallick |
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Institution: | a School of Accounting, Economics and Finance, Deakin University, 221 Burwood Highway, Vic 3125, Australia |
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Abstract: | This paper explores how different values of the elasticity of substitution between capital and labor (σ) impact on the balanced growth paths and growth potential of a country in exogenous growth models. The behavior of the system depends on the value of σ and the passage of σ through two critical values causes a qualitative change in the nature of the singular points and of its trajectories. The balanced growth path defined by a singular point in the form of a saddle-path exists and is locally stable if σ lies between two critical values. |
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Keywords: | Elasticity of substitution Economic growth Balanced growth path |
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