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Openness to trade as a determinant of the macroeconomic elasticity of substitution
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Openness to trade as a determinant of the macroeconomic elasticity of substitution

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  • Saam, Marianne

Abstract

Several theoretical and empirical studies on economic growth consider the macroeconomic elasticity of substitution between capital and labor as a measure of economic flexibility that depends on technological as well as institutional aspects. One institutional aspect of economic flexibility is openness to trade. I examine in a Heckscher-Ohlin model with two large countries trading intermediate goods how openness affects the elasticity of substitution. If the technology has a constant elasticity of substitution in a closed economy, opening up to trade raises the elasticity of substitution only in the country that accumulates capital at a faster rate.

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  • Saam, Marianne, 2008. "Openness to trade as a determinant of the macroeconomic elasticity of substitution," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 691-702, June.
    • Handle: RePEc:eee:jmacro:v:30:y:2008:i:2:p:691-702
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