The CES Production Function and Economic Growth Projections.

by Richard R. Nelson

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Presentation of a way to approximate the CES (Constant Elasticity of Substitution) model by the simpler Cobb-Douglas model, plus an added term. The paper examines the extra power of the CES model over the unitary elasticity of substitution (Cobb-Douglas) in explaining past growth of the American economy. The analysis suggests that gains in terms of explaining or predicting growth of output by use of the more complex model are not great in an economy like that of the United States. In an economy where capital stock is growing rapidly, however, there may be significant gains.

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