Appropriate Technology and Balanced Growth

Prof. Miguel Leon-Ledesma, University of Kent, UK

We develop a novel production function where the elasticity of capital-labor substitution is below one in the short run but converges to one in the long run. This results from allowing firms to choose the appropriate relative efficiency of capital and labor in a technology frontier. This leads to a class of production functions that are consistent with balanced growth in the long run even in the presence of permanent investment-specific or other kinds of biased technical progress, but where, as consistent with empirical evidence, short run dynamics are characterized by complementarity. Importantly, the approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the introduction of the new production technology matches well the short and medium run behavior of the labor share.

About the speaker
Miguel León-Ledesma is professor of Economics at the School of Economics, University of Kent. His research interests are in the areas of macroeconomics, international finance, and economic growth. He is the co-author of the postgraduate textbook Advanced International Macroeconomics and Finance (forthcoming, Oxford University Press). He has made contributions to a diversity of areas such as the identification of biases in technological progress and their effect on the labour market, the dynamics of the capital income share, as well as the role of financial constraints for the evolution of the real exchange rate and the degree of international business cycle coordination at the sectoral level. His work has been published in the leading journals of the profession such as the American Economic Review, European Economic Review, and Journal of the European Economic Association. He has been an academic consultant for the European Central Bank and the Asian Development Bank amongst other policy institutions. Miguel is director of MaGHiC, the newly created Macroeconomics, Growth and History Centre at the University of Kent.

Date: 09 October 2014

Time: 12:30 - 13:30