Epsilon Archive for Student Projects

Abstract

Directed technological change is very important, since it determines
(for instance) the rate of resource exploitation. The long term relationship
between resource prices and demand needs to be understood better,
in the light of new theories which have been developed to a great
extent by Acemoglu; in Acemoglu’s model, there either exists a balanced
growth path (complements) or a corner solution is approached
(substitutes), depending on the elasticity of substitution. In this thesis
the elasticity of substitution between labour and metals as well as
between aluminium and iron is estimated by OLS regression using a
CES production function and the Nerlove model. The relative factor
shares are examined. The former two are suggested to be substitutes,
the latter ones complements. This is surprising, it can however be explained
by the use of aggregate data which will show the total sum of
factor relations over all sectors. In further work it would be interesting
to limit the analysis to one economic sector; alternatively, existing
models need to be improved in order to reflect changing sector sizes.