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Capital-Labor Substitution, Sector-Specific Externalities and Indeterminacy

Author

Listed:
  • Nopphawan Photphisutthiphong

    (Rajamangala University of Technology, Thanyaburi)

  • Mark Weder

    (School of Economics, University of Adelaide)

Abstract

This paper examines the effect of the elasticity of technological substitution on the existence of equilibrium indeterminacy in two-sector economies. Recent empirical evidence, the elasticity of substitution between capital and labor is below unity. We ?nd that this requires a higher degree of productive externalities in order to still be able to produce indeterminate equilibria. However, indeterminacy is maintained for empirically realistic rates of substitution.

Suggested Citation

  • Nopphawan Photphisutthiphong & Mark Weder, 2009. "Capital-Labor Substitution, Sector-Specific Externalities and Indeterminacy," School of Economics and Public Policy Working Papers 2009-36, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2009-36
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    Keywords

    sunspots; two-sector models; indeterminacy; CES production functions; externalities;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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