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Biased Technical Change and Capital-Labour Substitution in Finland, 1902-2003
1Pellervo Economic Research Institute, email@example.com
2Helsinki School of Economics, firstname.lastname@example.org
3Bank of Finland, email@example.com
4Bank of Finland, firstname.lastname@example.org
Citation Information: Topics in Macroeconomics. Volume 6, Issue 1, Pages 1–20, ISSN (Online) 1534-5998, DOI: 10.2202/1534-5998.1328, April 2006
- Published Online:
The paper argues that a Cobb-Douglas specification may be a reasonable description of the Finnish aggregate production function when a sufficiently long time period (the 20th century) is considered. It is, however, a misleading description of the production technology for the post-WWII period. Controlling for biased technical change, the elasticity of substitution is significantly below one, close to 0.5, during 1945-2003. Given that similar results have been obtained for the U.S. economy, the analysis shows that the value of the elasticity of substitution cannot be dependent on some specific structure of economic institutions but is likely to reflect more general aspects of technology and production.