The long-term sucCESs of the neoclassical growth model
Abstract
In this paper, we seek to re-establish the link between the constant elasticity of substitution (CES) production function and neoclassical Solow growth theory. We do so in three dimensions. First, we review the increasing importance of the CES technology in modern dynamic macroeconomics, in expanding not only theory but also in addressing important policy questions. Second, we aue that the importance of the CES function in growth theory is intimately linked to ‘normalization’. Finally, we examine the data congruence between CES functions and recent growth patterns in the USA and the euro-area economies, where we apply a supply-side system incorporating a CES function with factor-augmenting and time-varying technical progress.