Elasticity Of Substitution Between Capital And Labor And Regional Economic Growth

Disequilibrium economic development between regions is a common problem existed of current economic development in our country.Under the background of the emphasizing on supply-side structural reform,this article explained regional disequilibrium of economic growth from the perspective of factor elasticity of substitution and explore the reasons of the economic growth difference between regional.Further to provide theoretical basis of promoting the regional economic equilibrium and sustainable development and reference for effective macroeconomic policies.This article,used the provincial panel data from 1997 to 2014,based on VES production function,estimated the factor elasticity of substitution by single-equation estimation methods.Then used 2SLS method to study the influence of factor elasticity of substitution on province economic growth.Firstly,the average factor elasticity of substitutions of each provinces is 1.0924,and the value is greater than 1which showing that it's a substitutional relation between capital and labor.The regional factor elasticity of substitution difference is obvious.The province which have the biggest factor elasticity of substitution is Shanghai and the value is 1.8236 while the smallest is Yunnan and the value is 0.5682.The regional distribution of factor elasticity of substitution is eastern area greater than central area greater than western area.In the sample period,the factor elasticity of substitutions of the whole country and each area both are rising over time.Secondly,the regression coefficients of influence of factor elasticity of substitution on province economic growth are all significant positive no matter the whole country or each area.It shows that greater the factor elasticity of substitution is,greater the economic growth rate is.Eastern area has the biggest regression coefficient which is 0.1391.The second is western area which the regression coefficient is 0.0538 and central area have the smallest regression coefficient,0.0366.The greater regression coefficient means greater promoting effect of factor elasticity of substitution on economic growth.So the factor elasticity of substitution of eastern area promote mostly to economic growth,and western area is the second while central area is the last.The result verified the De La Grandville hypothesis.There is a positive correlation relationship between the factor elasticity of substitution and economic growth.The difference between the actor elasticity of substitutions around each region make the difference between the economic growth rates,and come into different levels of economic development.Closing the gap of region factor elasticity of substitutions can contribute to narrow the gap between regional economic growth rates.Therefore,for boost the factor elasticity of substitutions of backward regions and equilibrium economic development,this article suggest to complete the system settings and match the effective macroeconomic policies as well as further market-oriented reforms and make full use of s decisive role of market in the allocation of resources to promote the factor flow.