Measuring Capital-Labor Substitution: The Importance of Method Choices and Publication Bias

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The Elasticity of Substitution Between Capital and Labor is a key parameter in economics. In a recent paper, Gechter et al. (2021) perform a meta-analysis to estimate the value of the Elasticity of Substitution Between Capital and Labor.

They collect 3,186 estimates reported in 121 separate studies.

They find that the empirical literature is characterized by extensive publication bias. The unconditional mean of estimates across all studies is equal to 0.9, and not statistically distinguishable from 1. After correction for publication bias, the value of the elasticity is equal to 0.5. After taking into account the influence of the estimation method, Gechter et al. (2021) arrive at their preferred estimate of 0.3.

Gechter et al. (2021) propose replication files. To our knowledge, their results have not been reproduced nor put on a live meta-analysis platform.