The Elasticity of Elasticity of Substitution Estimates : Is Anything Robust?

We use a CES production function with no restrictions on technical bias to derive relationships between the growth in relative factor shares and (i) the capital to labor ratio and (ii) the ratio of marginal products. These relationships constitute a parsimonious specification used to identify the elasticity of substitution between labor and capital (amp;#963;). We estimate amp;#963; using (a) quarterly and annual data sets, (b) level and growth rate specifications, and (c) OLS as well 2SLS and GMM estimators utilizing (d) instruments that are tested for both relevance and exogeneity. Estimation in each of the above cases is carried out (e) both imposing and not imposing cross-equation restrictions. The most robust result is that estimation with imposed cross-equation restrictions and quot;demand-shifterquot; instrumentation yields amp;#963; estimates that are, in most cases, very close to unity