Evaluating Endogenous Growth
Keywords:
Bayesian non-linear regression, Elasticity of substitution between capital and labor (ES), Variable Elasticity of Substitution (VES), Quality evaluating endogenous growth.Abstract
There are three main problems in analyzing the origins of economic growth: First, the choice of irrelevant production functions, second, the failed ignorance of such indispensable variables as human capital in a research model, and third, the use of unreliable econometric methods. Using the Bayesian non-linear regression via the Metropolis-Hasting algorithm, this work estimates a human capital-extended variable elasticity of substitution (VES) function in a Solow-Swan one-sector growth model for Vietnam, an emerging economy. The study reports the following findings: (1) A variable elasticity of substitution between capital and labor (ES) of higher than one implies that the possibility of unbounded endogenous growth has been generated in the economy of Vietnam; (2) Despite a continuous increase in physical investment over the transition period, the labor share rises relative to the capital share in Vietnam due to including embodied human capital in the model; (3) Scale economies do not take place in Vietnam, i.e., the economy approaches a status of perfect competition market; and (4) The human capital-extended VES production model is found to be appropriate for evaluating endogenous growth.
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