Long-Run Growth, Speed of Convergence and the Specification of Technology

Abstract

[Abstract]: This note analyzes the effect that the specification of technology has on the long-run growth rate and the asymptotic speed of convergence in the one-sector endogenous-growth model. We compare three otherwise identical economies – with the same baseline and parameter values – but with different production technologies: CES, VES or Sobelow, respectively. The long-run growth rate and the asymptotic convergence speed under CES production are lower than the corresponding ones under Sobelow production which, in turn, are lower than those under VES production. This is because a higher elasticity of substitution entails a higher easiness to substitute capital for labor which, in the end, results in a higher long-run growth rate.