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The constancy of the elasticity of factor substitution (σ) makes its role as a driver of the labor income share exogenous. The constant elasticity of substitution (CES) production function has predominantly been used to support this causal relationship. We argue that (i) capital-labor ratio determines the value of σ, and (ii) both capital-labor ratio and σ vary over time. We use a variable elasticity of substitution (VES) production framework that allows both labor income share and σ to change over time. Statistically significant empirical support is provided using the Japanese industrial productivity data. This suggests that the CES model may not be an ideal choice to examine the factor income share dynamics.

This paper provides the first comprehensive review of the empirical and theoretical literature on the determinants of the elasticity of substitution between capital and labor. Our focus is on the two‐input constant elasticity of substitution (CES) production function. We start by presenting four concise observations that summarize the empirical literature on the estimation of . Motivated by these observations, the main part of this survey then focuses on potential determinants of capital–labor substitution. We first review several approaches to the microfoundation of production functions where the elasticity of substitution (EOS) is treated as a purely technological parameter. Second, we outline the construction of an aggregate elasticity of substitution (AES) in a multi‐sectoral framework and investigate its dependence on underlying intra‐ and inter‐sectoral substitution. Third, we discuss the influence of the institutional framework on the extent of factor substitution. Overall, this survey highlights that the effective elasticity of substitution (EES), which is typically estimated in empirical studies, is generally not an immutable deep parameter but depends on a multitude of technological, non‐technological, and institutional determinants. Based on these insights, the final section identifies a number of potential empirical and theoretical avenues for future research.

The constant elasticity of substitution (CES) function is an important function that is widely used in both theoretical analysis and applied economics. We propose a systematic framework to estimate the deep nested CES function using the nonlinear least squares (NLS) method. This method fills the gap between current empirical studies and large-scale applied economic models such as computable general equilibrium (CGE) models. We estimate the elasticities of substitution at both the regional and sectoral levels using this framework. The results indicate that some elasticities of substitution are larger than those in the existing literature. In addition, our results emphasize the heterogeneity of the elasticities of substitution across regions and sectors during application.

Employing a neoclassical growth model with a constant elasticity of substitution production function, we develop a comparative static and dynamic analysis of the effects of the elasticity of substitution between inputs on the steady state growth path, growth threshold, speed of convergence and savings rates. Unlike earlier studies along these lines, we incorporate human capital, along with physical capital and raw labor, as a third input in the production function. We prove that a higher elasticity of substitution between inputs can lead to a higher steady state level for income per effective unit of labor. To illustrate the quantitative significance of the elasticity of substitution, we consider two ways in which human capital enters the production function. Employing cross country data, we find estimates for the normalized CES production functions with human capital to be significantly below unity.

As a result of catastrophic events, firms and other organizations are faced with input shortages and price shocks. Firms can respond to these events using a variety of “resilience” actions, or tactics. Here we provide a microeconomic foundation for analyzing a comprehensive range of these tactics, incorporating both inherent and adaptive concepts of resilience. We classify these tactics and derive optimality conditions for production with the use of each class of resilience in the context of a nested Constant Elasticity of Substitution (CES) function consisting of aggregated Capital (K), Labor (L), Infrastructure (I), and Materials (M). The framework has broad applicability, including measurement and scoring of resilience, cost-effectiveness assessment of resilience tactics individually and as a group, calculation of resilience indices, and supply-chain management.

This study quantifies the uneven welfare gains from trade between firm owners and workers in a multi-country model of monopolistic competition under a demand system of constant elasticity of substitution (CES). An agent decides to start up her own firm or to be employed as a worker according to her level of innate capability, which determines the productivity of her potential launched firm. Although keeping this model isomorphic to Melitz's (2003) heterogeneous firm model in terms of the aggregate welfare gains from trade, we are able to examine the welfare gains for firm owners and workers, respectively. Theoretically, we find that countries with lower domestic expenditure shares display higher disparities in welfare gains from trade between firm owners and workers. Taking the model to data, we illustrate the application of the methodology by calculating the respective average welfare gains (compared to autarky) of firm owners and of workers for 14 countries, including G7, BRIC, Korea, Singapore, and Taiwan. Among them, Singapore has relatively lower domestic expenditure shares and shows dramatically large disparity in welfare gains between these two occupations. Taking the year of 2006 as an example, the gap in welfare gains in Singapore reaches to 445.03% while the same measure in the United States is only 9.95%.

Two articles (Hugonnier et al., 2013; Cordoba and Ripoll, 2017) have proposed a recursive formulation of utility functions combining a positive value of life, preference homotheticity, and a constant elasticity of substitution. However, when the elasticity of substitution is below one and mortality rates take plausible values, this recursive formulation admits only a unique solution where utility is constant and equals zero everywhere. Non-constant solutions may only exist if mortality rates are assumed to remain low at all ages, namely in a world of perpetually young agents. Such solutions are therefore unsuitable for studying the value of life in demographically relevant settings and yield counterfactual predictions for saving behavior. We conclude this clarifying paper by reviewing various recursive specifications that can be used to study the value of life with no such problems.

Increasingly, international trade policy analysis explores the economic effects of changes in ad-valorem tariffs, or ad-valorem equivalent non-tariff measures, on vertically integrated markets for which high quality data are not available. Standard Constant Elasticity of Substitution (CES) Armington models fail to account for either vertical linkages or parameter uncertainty. Here we introduce a modified Armington CES vertically integrated two-sector model, with nested Armington Elasticities, that incorporates uncertainty in the estimates of Armington Elasticities and market shares through a Monte Carlo simulation. As an illustrative case, we model the effects of changes in country of origin labeling (COOL) rules on the market shares of domestic and foreign cattle in the U.S. beef market. By accounting for parameter uncertainty in this way, we are able to illustrate the distribution of potential effects of repealing mandatory COOL. Moreover, we are able to decompose the effect of repealing COOL via its effect on relative prices, information available to consumers, and the quasi-general equilibrium effect. Finally, we uncover the conditions under which Canada and Mexico would benefit from the repeal of mandatory COOL by at least as much as they claim in their WTO filings against the regulation.

We propose a general model of monopolistic competition which encompasses existing models while being flexible enough to take into account new demand and competition features. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shock are characterized through necessary and sufficient conditions. Furthermore, we show that the attention to the constant elasticity of substitution (CES) based on its normative implications was misguided: constant mark-ups, additivity and homotheticity are neither necessary nor sufficient for the market to deliver the optimum outcome. Our approach can cope with heterogeneous firms once it is recognized that the elasticity of substitution is firm-specific. Finally, we show how our set-up can be extended to cope with multiple sectors.

The penetration of Variable Renewable Energies (VREs) in the electricity mix poses serious challenges in terms of management of the electrical grids, as the associated variability and non-dispatchability are in contrast with the requirement that the load be instantaneously equalized by the generation. One of the goals of Integrated Assessment Models (IAMs) is to simulate the evolution of electricity demand and generation mix over time, therefore a proper modeling of VRE system integration is crucial. In this paper we discuss how different modeling mechanisms can profoundly impact the evolution of the electricity mix, and specifically renewable penetration. In particular, we focus on the effects of introducing a set of explicit system integration constraints in a model, WITCH, characterized by a Constant Elasticity of Substitution (CES) framework.

Vietnamese rice production has achieved remarkable success over last decades. By the land and market reforms, known as “Doi Moi”, in which there were noticeable changes in policies such as land and production system were transformed from collective to individual contract system in 1980s, the process of legally privatization of farm properties, huge investment in irrigation system, Vietnam made progress in rice production. The country not only ensured its domestic demand but also started exporting rice and gradually became the second largest exporter in the world. An estimate of the constant elasticity of substitution function (CES) for Vietnam’s rice production is essential for the government to design effective policy on agricultural production. This study makes the first attempt to estimate the nested CES model for Vietnam rice production in 2012. The paper finds that the elasticity of substitution of Vietnam's nested CES model lies between 0.44 to 0.46. The results indicate that the weak substitutability between land and the nest (labor, capital) in the nested CES model. The paper also provides empirical evidence that the nested CES structure in which capital with land are nested inputs and labor plays a role as the third input is rejected. This suggests that it is impossible to take labor as the substitutable factor for land and capital. The findings would partly contribute to design the Vietnam’s effective policies on rice production with the appropriate allocation of inputs factors in order to achieve the optimal output.

Supersedes Working Paper 09-7. We estimate a structural model of optimal life-cycle housing and nonhousing consumption in the presence of labor income and house price uncertainties. The model postulates constant elasticity of substitution between housing service and nonhousing consumption and explicitly incorporates a housing adjustment cost. Our estimation fits the cross-sectional and time-series household wealth and housing profies from the Panel Study of Income Dynamics (1984 to 2005) reasonably well and suggests an intratemporal elasticity of substitution between housing and nonhousing consumption of 0.487. The low elasticity estimate is largely driven by moments conditional on state house prices and moments in the latter half of the sample period and is robust to different assumptions of housing adjustment cost. We then conduct policy analyses in which we let house price and income take values as those observed between 2006 and 2011. We show that the responses depend importantly on the housing adjustment cost and the elasticity of sub-stitution between housing and nonhousing consumption. In particular, compared with the benchmark, the impact of the shocks on homeownership rates is reduced, but the impact on nonhousing consumption is magnified when the house selling cost is sizable or when housing service and nonhousing consumption are highly substitutable.

We generalize the normalized Constant Elasticity of Substitution (CES) production function by allowing the elasticity of substitution to vary isoelastically with (i) relative factor shares, (ii) marginal rates of substitution, (iii) capital-labor ratios, or (iv) capital-output ratios. Ensuing four variants of Isoelastic Elasticity of Substitution (IEES) production functions have a range of intuitively desirable properties and yield empirically testable predictions for the functional relationship between relative factor shares and (raw or technology-adjusted) capital-labor ratios. As an empirical application, the parameters of IEES functions are estimated in a three-equation supply-side system with factor-augmenting technical change, based on data on aggregate production in the post-war US economy. Our estimates consistently imply that the elasticity of substitution between capital and labor has remained relatively stable, at about 0.8-0.9, from 1948 to the 1980s, followed by a period of secular decline.

The paper presents econometric estimates of the capital-labor substitution elasticities in terms of 10 economic activities based on the 2003-2009 data. Elasticities are estimated in the context of computable general equilibrium (CGE) methodology, particularly, based on the constant elasticity of substitution in production functions and cost minimization assumptions. Selection of methods and approaches to elasticities estimation is based on the literature review. Thus the paper considers several issues: minimum amount of statistical data, required to obtain reliable estimates; choice of functional forms; and specification of economic indicators for production functions variables representation. According to the received estimates, values of Ukrainian capital-labor substitution elasticities are rather low – 0,13-0,82. Service industries are characterized by lower elasticity values, compared to the real sector of Ukrainian economy, which can be explained by the fact that services have higher labor intensity.Despite the availability of relatively small amount of historical data and some methodological aspects, obtained estimates call into question the appropriateness of application of certain production functions for modeling the investigated processes. In particular, this includes the case of Cobb-Douglas production functions that have unitary elasticity of substitution.

For the US the supply and wages of skilled labor relative to those of unskilled labor have grown over the postwar period. The literature has tended to explain this through “skill-biased technical change”. Empirical work has concentrated around two variants: (1) Capital-skill complementarity, and (2) Skill-augmenting technical change. Our purpose is to nest and discriminate between these two explanations. We do so in the framework of 2- and 3-level CES production function where factors are disaggregated into skilled and unskilled labor, and the capital stock into structures and equipment capital. Using a 5-equation system approach and several nesting alternatives, we retrieve estimates of the elasticities of substitution and factor augmenting technical changes. Our estimations are able to produce results in line with capital skill- complementarity hypothesis. However, those results are outperformed results where the only source of the widening skill-premium has been skill augmenting technical change. We also show that the different explanations for SBTC have very different implications for future projected developments of the skill premium. JEL Classification: J01, J31, O4

This paper presents the first year results of a three-year study that was designed to measure the impact of time-of-use rates in the Canadian province of Ontario. Unlike prior studies which have analyzed such impacts in an experimental setting featuring the randomized allocation of customers to treatment and control groups, this study deals with a situation where the deployment of time-of-use rates was not experimental in nature. It was part of a full-scale program. By carefully drawing samples across four local distribution companies, we were able to interpret the study as a natural experiment and construct control groups and treatment groups. We used the addilog model of consumer demand to estimate elasticities of substitution between peak, mid-peak and off-peak periods. The addilog model includes as a special case the constant elasticity of substitution model that has been widely used in the literature on customer response to time-of-use rates. The estimated elasticities are well behaved and consistent with those found in the literature.

The paper estimates substitution elasticity between labor and capital in a constant elasticity of substitution (CES) production function based on the World Input-Output Database (WIOD, Timmer 2012). I estimate the elasticities and growth rates of factor-augmented technical progress based on the two first order conditions (FOCs) under the assumption of competitive profit-maximization producers. Taking into account for the capital as a fixed input and the labor as a variable input in the short term particularly within a year, I adopt the FOC with respect to capital where capital input is the explanatory variable and the FOC with respect to labor where wage rate is the explanatory variable. The results show that the industrial elastisities fall within a range from 0.4 to 0.9 and aggregate country-level elasticity is around 0.62. 90% of the estimated annual changes in factor-augmented technology fall within a range from -0.12 to 0.17. At the country level, 35 of the 40 countries exhibit net labor-augmenting technical progress.

We consider standard monopolistic competition models with aggregate consumer's preferences defined by two well-known classes of utility functions -- the Kimball utility function and the variable elasticity of substitution utility function. It is known that market equilibrium is efficient only for the special case when utility function has a constant elasticity of substitution, but we find that in both cases a special tax on firms' output may be introduced such that market equilibrium becomes efficient.

This paper proposes a new framework for the measurement of population health and the ranking of the health of different geographies. Since population health is a latent variable, studies which measure and rank the health of different geographies must aggregate observable health attributes into one summary measure. We show that the methods used in nearly all the literature to date implicitly assume that all attributes are infinitely substitutable. Our method, based on the measurement of multidimensional welfare and inequality, minimizes the entropic distance between the summary measure of population health and the distribution of the underlying attributes. This summary function coincides with the constant elasticity of substitution and Cobb–Douglas production functions and naturally allows different assumptions regarding attribute substitutability or complementarity. To compare methodologies, we examine a well-known ranking of the population health of U.S. states, America's Health Rankings. We find that states’ rankings are somewhat sensitive to changes in the weight given to each attribute, but very sensitive to changes in aggregation methodology. Our results have broad implications for well-known health rankings such as the 2000 World Health Report, as well as other measurements of population and individual health levels and the measurement and decomposition of health inequality.

This paper aims to fill the gap between the theoretical and empirical studies of the home market effect (HME). On the one hand, empirical studies on the price aspect of the HME that the wage is higher in the larger market are supportive but studies on the quantity aspect that the firm share in the larger market is more than proportionate is highly mixed. On the other hand, most existing theoretical studies support the quantity aspect but neglect the price aspect. By incorporating the additively quasi-separable constant absolute risk aversion utility in a footloose capital model, we are able to capture the pro-competitive effect and the income effect together and examine the HME. The new theoretical results are consistent with the empirical studies. We also obtain some interesting results regarding the variable markups.

Trade liberalization benefits consumers, according to trade theories, because it gives them access to a wider variety of products at lower prices than what their home country could supply. Despite Korea’s continuous trade liberalization over the years, however, it is criticized that Korean consumers have rarely realized welfare enhancement due to trade liberalization, pointing to no change or even an increase in consumer prices of imported goods for which tariff was reduced or eliminated through trade liberalization or effectuation of free trade agreements with other countries. While it is generally believed that trade liberalization benefits consumers, there is only a handful of direct evidence on the gains from trade that particularly focuses on consumers’ welfare. In this report, we examine and estimate the welfare impacts of trade liberalization and increased trade on consumers. First, we investigate the trend of prices of imported consumer goods over time and then identify factors that might affect those prices. Second, we examine changes in product variety available in Korea due to trade liberalization and estimate how these changes in product variety affect Korean consumers’ welfare. In particular, within a constant elasticity of substitution (CES) framework, we develop a price index for import that is corrected for new and disappearing varieties by following Feenstra’s (1994) approach and using Korea’s trade data. New varieties lower unit costs, depending on their substitutability with other varieties and their expenditure shares. Third, we investigate the marketing margins of imported consumer goods from the border to final consumers and estimate the margin on every stage for each marketing channel.

In a neoclassical growth model with a constant elasticity of substitution production function, the conventional wisdom claims that capital augmenting technical change is labor biased and ceteris paribus increases the labor share when capital and labor are gross compliments. We construct an endogenous biased technical change model to challenge that interpretation. We show that capital augmenting technical change is capital biased and ceteris paribus decreases the labor share irrespective of the size of the elasticity of substitution. And we also provide a microfoundation for the induced aggregate production function to take the form of AK in the long-run.

The paper estimates substitution elasticity between labor and capital in a constant elasticity of substitution (CES) production function for agriculture of seven major producers. I adopt the normalized system approach suggested by Leon-Ledesma et al. (2010) and the data from World Input-output Database (WIOD) to study to what extent time period matters for the estimated elasticities. The elasticities are estimated on the basis of data from 1995 to one of the years among 1999-2009 respectively. The results show that the time period has almost no effect on the estimated elasticity for India, longer time period lead to lower estimates of elasticity for China, Higher for Brazil, relatively stable for USA and Russia, and inconclusive for Australia and Canada.

One channel of welfare-improving globalization is through the increasing integration of trade. Although this is attributed to decreasing effects of distance across countries, the workhorse models of gravity fail to capture it, the so-called the missing globalization or the distance puzzle. This paper shows that this puzzle may be due to the restricting assumption of constant elasticity of substitution (CES) preferences working behind the gravity models. We test the validity of this assumption for different trade intervals and show that it is violated due to the distance elasticity of trade decreasing with the amount of trade. Accordingly, we consider a type of non-CES utility function, namely constant absolute risk version (CARA), and analytically show that the negative relation between trade and distance elasticity of trade is captured by CARA preferences. We estimate the gravity equation implied by CARA preferences, empirically confirm the endogenous relation between trade and distance elasticity of trade, and show that the distance puzzle is solved under CARA preferences. According to the data set used, CARA preferences are also econometrically selected over CES preferences based on their goodness of fit.

This paper provides new evidence on the long-run relationship between economic growth and labor's share in national income, based on a comprehensive panel data set for 123 countries from 1950 to 2004. Xie's primary finding is that labor's share follows a cubic relationship with real GDP per capita over the long process of development. At the beginning of the modern economic growth process, the share of labor in national income first decreases until an initial threshold is reached. After that, labor's share keeps increasing until the country's GDP per capita reaches a second threshold before falling again. Xie argues that these dynamics apply not only to the less developed countries in the postwar years, but also to the advanced countries like the United States and the United Kingdom during their early economic take-offs, starting in the late 18th and 19th century, respectively. Finally, he proposes a two-sector constant elasticity of substitution (CES)-type growth model and simulate the model to replicate and explain the possible mechanism behind such a nonlinear pattern of movements in labor's share.

This paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour ( w=1); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES).On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal.

We investigate the time varying relation between hours and technology shocks using a structural business cycle model. We propose an RBC model with a Constant Elasticity of Substitution (CES) production function that allows for capital- and labor-augmenting technology shocks. We estimate the model with Bayesian techniques. In the full sample, we find (i) evidence in favor of a less than unitary elasticity of substitution (rejecting Cobb-Douglas) and (ii) a sizable role for capital augmenting shock for business cycles fluctuations. In rolling sub-samples, we document that the transmission of technology shocks to hours worked has been varying over time. We argue that this change is due to the increase of the elasticity of factor substitution. That is, labor and capital became less complementary throughout the sample inducing a change in the sign and size of the response of hours. We conjecture that this change may have been induced by a change in the skill composition of the labor input.

We study hedonic games with heterogeneous player types that reflect her nationality, ethnic background, or skill type. Agents' preferences are dictated by status-seeking where status can be either local or global. The two dimensions of status define the two components of a generalized constant elasticity of substitution utility function. In this setting, we characterize the core as a function of the utility's parameter values and show that in all cases the corresponding cores are non-empty. We further discuss the core stable outcomes in terms of their segregating versus integrating properties.

The paper analyzes effects of occupational and regional mobility on the matching rate using the monthly panel disaggregated on regional and occupational level. The main contribution of the paper is measuring the effect of substitutability between vacancies for different occupations and vacancies in different regions on matchings. The estimates indicate higher regional mobility in West Germany but higher occupational mobility in East Germany. The results show that if occupations were perfect substitutes, the number of matches could increase by 5-9%. Perfect regional mobility could increase matchings by 5-15%. It is also shown that partial aggregation causes a downward bias in substitutability estimates.

This paper shows that, counter-intuitively, a higher elasticity of substitution in model production function can lead to reduced economic resilience and larger vulnerability to shocks in production factor prices. This result is due to the fact that assuming a higher elasticity of substitution requires a recalibration of the production function parameters to keep the model initial state unchanged. This result has consequences for economic analysis, e.g., on the economic vulnerability to climate change.

This paper presents an analysis of government spending and optimal human investment allocation rate in the two sector model of an endogenous growth (education and good sectors), by comparing solutions between social planner maximization problem and decentralized competitive equilibrium, and by considering two types of utility functions: the Constant Inter-temporal Elasticity of Substitution (CIES) and the Constant Elasticity of Substitution (CES) with labor-leisure choice. The results show that the optimal rate of human investment allocation depends on the elasticity of inter-temporal substitution in which it describes insignificant changes when we use CIES or CES. Moreover, the optimal rate of human investment allocation both in social planner as well as decentralized competitive equilibrium are equivalent which suggest that Pareto optimum is prevailed

We study optimal portfolio, consumption-leisure and retirement choice of an infinitely lived economic agent whose instantaneous preference is characterized by a constant elasticity of substitution (CES) function of consumption and leisure. We integrate in one model the optimal consumption-leisure-work choice, the optimal portfolio selection, and the optimal stopping problem in which the agent chooses her retirement time. The economic agent derives utility from both consumption and leisure, and is able to adjust her supply of labor flexibly above a certain minimum work-hour, and also has a retirement option. We solve the problem analytically by considering a variational inequality arising from the dual functions of the optimal stopping problem. The optimal retirement time is characterized as the first time when her wealth exceeds a certain critical level. We provide the critical wealth level for retirement and characterize the optimal consumption-leisure and portfolio policies before and after retirement in closed forms. We also derive properties of the optimal policies. In particular, we show that consumption in general jumps around retirement.

This paper constructs a model of non-balanced economic growth. The main economic force is the combination of differences in factor proportions and capital deepening. Capital deepening tends to increase the relative output of the sector with a greater capital share, but simultaneously induces a reallocation of capital and labor away from that sector. We first illustrate this force using a general two-sector model. We then investigate it further using a class of models with constant elasticity of substitution between two sectors and Cobb-Douglas production functions in each sector. In this class of models, non-balanced growth is shown to be consistent with an asymptotic equilibrium with constant interest rate and capital share in national income. We also show that for realistic parameter values, the model generates dynamics that are broadly consistent with US data. In particular, the model generates more rapid growth of employment in less capital-intensive sectors, more rapid growth of real output in more capital-intensive sectors and aggregate behavior in line with the Kaldor facts. Finally, we construct and analyze a model of "non-balanced endogenous growth," which extends the main results of the paper to an economy with endogenous anddirected technical change. This model shows that equilibrium will typically involve endogenous non-balanced technological progress.

We examine whether the European settlement and custody institutions operate in an efficient way. To do this, we start from en analytically founded discussion regarding the activities performed by the operators in this sector. Based on the insights obtained, we estimate both a translog cost function and a constant elasticity of substitution - quadratic cost function. From the results obtained, there clearly are economies of scale in this industry. Moreover, also economies of scope between the activities performed are present. These findings imply that probably further consolidation is ahead, and that separating certain activities from others can only be done at a cost in terms of efficiency.

The real effective exchange rate is an aggregation of several bilateral real exchange rates with respect to other countries. The aggregation is usually done under the assumption of constant elasticity of substitution(CES) between products from different countries. We investigate the validity of this assumption by estimating manufacturing export equations for 56 countries over 26 years. We find that the hypothesis of CES is rejected and that the export equations that contain two real effective exchange rates (one in relation to OECD countries and one in relation to OECD countries and one in relation to non-OECD countries) perform on average considerably better than the traditional ones.

We show that (Marshallian) income elasticities are proportional to (Frisch) own price elasticities if all goods are additively separable. This implies that luxuries are likely to be easier to postpone. It also implies that preferences over "consumption" are unlikely to display a constant elasticity of substitution.

This paper examines the usefulness of a result of Deardorff and Staiger (1988), who showed that the factor content of trade can be interpreted under certain assumptions as indicating the nature of the factor price adjustments that can, in a specified sense, be attributed to that trade. This paper elaborates on the sense in which this result says anything about the factor market effects of trade. It also examines several of the assumptions that were used by Deardorff and Staiger to determine whether they can be relaxed. These include the assumption, used for only one of Deardorff and Staiger's several results, of Cobb-Douglas technology, which is shown here to be easily extended to Constant Elasticity of Substitution. Also examined is the assumption of nonspecialization, or that all imported goods are produced or producable in the domestic economy. With Cobb-Douglas technology that assumption is shown not to be needed. With more general technology, however, the presence of non-competing imports requires a reinterpretation of the factor content of trade. Whereas without noncompeting imports, trade itself is analogous, in terms of its effects on factor markets, to a change in factor endowments equal to the factor content of trade, with noncompeting imports trade has an additional effect analogous to a Hicks-neutral technological improvement enabling those noncompeting imports to be produced competitively.