The value of the elasticity of substitution between labor and capital (ó) is a “crucial” assumption in understanding the secular decline in labor share of income (Piketty (2014a), Karabarbounis and Neiman (2014)) and long-run growth (Solow, 1956). This paper begins by examining the role of...

Large and sustained differences in marginal products of capital (MPKs) across countries are sharply at odds with the core implications of the neoclassical framework. Lucas (1990) and many subsequent studies have examined reasons for this MPK differential. In a recent contribution, Caselli and...

Nearly 75 years ago, John Hicks introduced and formalized the concept of the elasticity of substitution between capital and labour and its relation to derived demand. The resulting formula has proven very useful in understanding the derived demand for productive factors, the distribution of...

This note uses insights from cointegration analysis to reexamine two separate but related issues concerning the estimation of production function parameters. Fisher (1971) documented a paradox in estimating substitution elasticities -- the puzzling divorce between the technology underlying his...