Normalizing VES production functions: extending the supply-side system approach

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URI: https://hdl.handle.net/10347/45008
ISSN: 0165-1765
E-ISSN: 1873-7374
DOI: 10.1016/J.ECONLET.2025.112794

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2026

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Elsevier
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This paper extends the Klump et al. (2007) normalization procedure to Variable Elasticity of Substitution (VES) production functions. Normalization addresses identification issues in VES model estimation, allowing joint estimation of substitution elasticities and factor-augmenting technical change, while offering a tractable extension of the normalized supply-side system that bridges the gap between CES and more flexible VES specifications.

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Variable elasticity of substitution (VES)| Normalization| Factor-Augmenting Technical Change| Identification| Capital-labour elasticity of substitution| Normalized supply-side system

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del Río, F., & Rebelo, F. (2025). Normalizing VES Production Functions: Extending the Supply-Side System Approach. Economics Letters, 112794. https://doi.org/10.1016/J.ECONLET.2025.112794

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We acknowledge the financial support of the Spanish Ministry of Sciences and Innovation (PID2023-147667NB-I00) and Xunta de Galicia (GRC GI-2060 ED431C2023/05)

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© 2025 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
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Centro de Investigación Interuniversitario en Economía e Empresa para a Sociedade (ECOBAS)
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Fundamentos da Análise Económica