CES production functions and economic growth

We examine inconsistencies and controversies related to the use of CES prod uction functions in growth models. First, we show that not all variants of CES functions commonly used are consistently specified. Second, using a sim ple growth model, we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more pro bable. It is also pointed out that the effect of a higher elasticity of sub stitution on the speed of convergence depends on the relative scarcity of t he factors of production. Finally, we discuss possible explanations of vari ations in the elasticity of substitution.