Abstract
We consider a discrete-time two-sector CES economy with sector specific external effects in which factor substitutability differs across sectors. For this general model, we provide sufficient conditions on the elasticities of capital/labor substitution for local indeterminacy of equilibria.
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Acknowledgement We would like to thank two anonymous referees, the editor Dieter Bös and Tapan Mitra for comments on an earlier version of this paper, previously entitled “Capital Depreciation, Factors Substitutability and Indeterminacy”, which allowed us to improve considerably the results.
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Nishimura, K., Venditti, A. Asymmetric Factor Substitutability and Indeterminacy. JEcon 83, 125–150 (2004). https://doi.org/10.1007/s00712-004-0066-x
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DOI: https://doi.org/10.1007/s00712-004-0066-x
Keywords
- sector specific externalities
- elasticity of capital-labor substitution
- constant social returns
- local indeterminacy