The Solow model with CES technology: nonlinearities and parameter heterogeneity

Abstract

Abstract This paper examines whether nonlinearities in the aggregate production function can explain parameter heterogeneity in the Solow growth regressions. Nonlinearities in the production technology are introduced by replacing the commonly used Cobb–Douglas (CD) aggregated production specification with the more general Constant‐Elasticity‐of‐Substitution (CES) specification. We first justify our choice of production function by showing that cross‐country regressions favour the CES over the CD technology. Then, by using an endogenous threshold methodology we show that the Solow model with CES technology is consistent with the existence of multiple regimes. Copyright © 2004 John Wiley & Sons, Ltd.

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