Normalizing VES production functions: extending the supply-side system approach

• Extends CES normalization to VES with variable elasticity of substitution. • Bridges CES and VES within a tractable normalized supply-side system. • Proposes restricted VES specifications to mitigate weak-identification risks. This paper extends the Klump et al. (2007) normalization procedure to Variable Elasticity of Substitution (VES) production functions. Normalization addresses identification issues in VES model estimation, allowing joint estimation of substitution elasticities and factor-augmenting technical change, while offering a tractable extension of the normalized supply-side system that bridges the gap between CES and more flexible VES specifications.