Elasticity of Substitution and Economic Growth: Some New Results

ABSTRACT The main aim of this paper is to improve some recent results on the impact of the elasticity of substitution on economic growth. We proved the existence, uniqueness, and asymptotic stability of the balanced growth equilibrium and then study the effect of the elasticity of substitution on the long‐run equilibrium and on the steady state. We also show that a higher elasticity of substitution increases per capita income, the relative share of physical capital, the common growth rate, and the share of human capital allocated to the production sector. MSC Classification: C61, C62, E21, O41