The elasticity of substitution and labor-saving innovations in the Spanish regions


  • Antonio Cutanda Universidad de Valencia


This paper performs a nonlinear estimation of a normalized CES production function within a system of equations with a panel of Spanish regions for the period 1964-2013. It obtains an elasticity of substitution below one and identifies different rates of factor-augmenting technical progress. The results support for labor-saving innovations hypothesis for the Spanish case. Nevertheless, they do not support a relationship between the elasticity of substitution and the initial regional capital per worker. The results do not change if labor is adjusted by human capital.


Production function, CES, normalization, regional data