Multifactor CES General Equilibrium: Models and Applications

Abstract

Sector specific multifactor CES elasticity of substitution and the corresponding productivity growths are jointly measured by regressing the growths of factor-wise cost shares against the growths of factor prices. We use linked input-output tables for Japan and the Republic of Korea as the data source for factor price and cost shares in two temporally distant states. We then construct a multi-sectoral general equilibrium model using the system of estimated CES unit cost functions, and evaluate the economy-wide propagation of an exogenous productivity stimuli, in terms of welfare. Further, we examine the differences between models based on a priori elasticity such as Leontief and Cobb-Douglas.