Steady-State Growth and the Elasticity of Substitution

In a neoclassical economy with endogenous capital- and labor-augmentingtechnical change the steady-state growth rate of output per worker is shown to increasein the elasticity of substitution between capital and labor. This conrms theassessment of Klump and de La Grandville (2000) that the elasticity of substitutionis a powerful engine of economic growth. However, unlike their ndings my resultapplies to the steady-state growth rate. Moreover, it does not hinge on particularassumptions on how aggregate savings come about. It holds for any household sectorallowing savings to grow at the same rate as aggregate output.[...]