Technology Choice and the Evolution of the Elasticity of Substitution in South Korea

This paper estimates a dynamic general equilibrium model incorporating technology choice, in line with what proposed by León-Ledesma and Satchi (2019). This framework allows to determine how the capital/labour share and the long-run elasticity of substitution have evolved along the long-run growth path in South Korea in the last 30 years. We also compare the empirical performance of this model, in terms of the model s ability to explain the data, with several alternative specifications of the production function, namely the Cobb-Douglas and CES functions. Our estimates show the superiority of the technology choice specification over both the Cobb-Douglas and CES technology.