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Elasticity of substitution and the slowdown of the Italian productivity

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  • Saltari, Enrico
  • Federici, Daniela

Abstract

The aim of this paper is to investigate the roots of the Italian total factor productivity slowdown. The analysis focusses on the specific pattern of technical progress in determining the TFP dynamics. This analysis can not be done with the Cobb-Douglas technology but requires the employ of a CES function which allows to distinguish between the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capital-augmenting technical change, with a σ less than 1. We obtain three main results. 1) There seems to have been a structural break around the mid-nineties in the direction and bias of technological change; 2) The first half of the sample features a labor-augmenting technical change and a capital bias; 3) In the second part of the sample both these characteristics seem to disappear, and factor endowments evolution assumes a key role. This fact may be view as one of the potential causes of the Italian productivity stagnation.

Suggested Citation

  • Saltari, Enrico & Federici, Daniela, 2014. "Elasticity of substitution and the slowdown of the Italian productivity," MPRA Paper 58422, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58422
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    References listed on IDEAS

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    1. Saltari Enrico & Wymer Clifford R. & Federici Daniela & Giannetti Marilena, 2012. "Technological Adoption with Imperfect Markets in the Italian Economy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(2), pages 1-30, April.
    2. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    3. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    4. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
    5. Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-1357, September.
    6. Federici, Daniela & Saltari, Enrico, 2018. "Elasticity Of Substitution And Technical Progress: Is There A Misspecification Problem?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(1), pages 101-121, January.
    7. Saltari, Enrico & Wymer, Clifford R. & Federici, Daniela, 2013. "The impact of ICT and business services on the Italian economy," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 110-118.
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    Cited by:

    1. Alessandro Mistretta & Francesco Zollino, 2021. "Recent Trends in Economic Activity and TFP in Italy with a Focus on Embodied Technical Progress," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(1), pages 79-107, March.
    2. Wymer, Clifford R. & Saltari, Enrico & Federici, Daniela, 2019. "Endogenizing The Ict Sector: A Multisector Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 23(S1), pages 25-58, September.
    3. Alessandro Mistretta & Francesco Zollino, 0. "Recent Trends in Economic Activity and TFP in Italy with a Focus on Embodied Technical Progress," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 0, pages 1-29.

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    More about this item

    Keywords

    CES production function; Elasticity of substitution; Factor-augmenting technical progress; ICT technical change.;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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