Estimation of Sectoral Elasticities of Substitution Along the International Technology Frontier

Sectoral heterogeneity is crucial to address several economic questions. This pap er provides a detailed mapping of sectoral pro duction p ossibility frontiers, using different nesting structures and levels of aggregation (primary, secondary, tertiary activities and energy-intensive firms). Elasticities of substitution b etween capital, lab our and energy are identified by employing an international multi- sector dataset, accounting for biased technological change and normalising the pro duction function to clusters of observations. Complementarity dominates, with the noteworthy exception of the capital- lab our comp osite, close to Cobb-Douglas. I also present some stylized facts relating substitution elasticities to sectoral characteristics.

Baccianti, Claudio (2013), Estimation of Sectoral Elasticities of Substitution Along the International Technology Frontier, ZEW Discussion Paper No. 13-092, Mannheim.