The Long-Term Success of the Neoclassical Growth Model

Posted: 25 Jun 2008

See all articles by Rainer Klump

Rainer Klump

affiliation not provided to SSRN

Peter McAdam

European Central Bank (ECB)

Alpo Willman

University of Kent - Canterbury Campus

Date Written: Spring 2007

Abstract

In this paper, we seek to re-establish the link between the constant elasticity of substitution (CES) production function and neoclassical Solow growth theory. We do so in three dimensions. First, we review the increasing importance of the CES technology in modern dynamic macroeconomics, in expanding not only theory but also in addressing important policy questions. Second, we argue that the importance of the CES function in growth theory is intimately linked to normalization. Finally, we examine the data congruence between CES functions and recent growth patterns in the USA and the euro-area economies, where we apply a supply-side system incorporating a CES function with factor-augmenting and time-varying technical progress.

Keywords: Solow growth model, capital labour substitution, technological change, factor shares, normalized CES function, supply-side system, United States, euro area

JEL Classification: C22, E23, E25, O30, O51

Suggested Citation

klump, rainer and McAdam, Peter and Willman, Alpo, The Long-Term Success of the Neoclassical Growth Model (Spring 2007). Oxford Review of Economic Policy, Vol. 23, Issue 1, pp. 94-114, 2007, Available at SSRN: https://ssrn.com/abstract=1151114 or http://dx.doi.org/10.1093/oxrep/grm003

Rainer Klump (Contact Author)

affiliation not provided to SSRN

Peter McAdam

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Eurotower
D-60311 Frankfurt am Main
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Alpo Willman

University of Kent - Canterbury Campus ( email )

Finland

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