Estimation of sectoral elasticities of substitution along the international technology frontier

Baccianti, Claudio

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URN: urn:nbn:de:bsz:180-madoc-352453
Document Type: Working paper
Year of publication: 2013
The title of a journal, publication series: ZEW Discussion Papers
Volume: 13-092
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C68 , O14 , O41 , Q43,
Keywords (English): Constant elasticity of substitution , normalisation , sectoral disaggregation , nested CES structure , energy demand
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.

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