Elasticity of substitution and general model of economic growth

TL;DR

This paper explores how the elasticity of substitution influences key economic growth parameters, demonstrating that higher elasticity generally boosts income, capital shares, and growth rates regardless of whether it is below or above one.

Contribution

It generalizes previous models by analyzing the effects of elasticity of substitution on economic growth parameters across different values.

Findings

Higher elasticity of substitution increases per capita income.

It raises the relative share of physical capital and human capital in production.

The effects are consistent whether elasticity is below or above one.

Abstract

The main purpose of this paper is to generalize some recent results obtained by Chilarescu and Manuel Gomez. Essentially, we are trying to study the effect of elasticity of substitution on the parameters of economic growth, based on its two possible values - lower and higher than one. We show that a higher elasticity of substitution increases per capita income, the relative share of physical capital, the common growth rate and the share of human capital allocated to the production sector, and this property is not affected by the position of the elasticity of substitution - below or above one.