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Cambridge Journal of Economics Advance Access originally published online on January 12, 2006
Cambridge Journal of Economics 2006 30(5):737-765; doi:10.1093/cje/bei089
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© The Author 2006. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

An empirical investigation of paradoxes: reswitching and reverse capital deepening in capital theory

Zonghie Han and Bertram Schefold*

* Korea Land Corporation and Johann Wolfgang Goethe-Universität, Germany, respectively

Address for correspondence: Bertram Schefold, Fachbereich Wirtschaftswissenschaften, Johann Wolfgang Goethe-Universität, Frankfurt, Germany; email: schefold{at}wiwi.uni-frankfurt.de

Abstract

This paper examines the empirical relevance of the capital controversy. The price model of Sraffa and the dual models of the price and quantity systems of von Neumann become the basis of the investigation. In the course of the controversy, it proved easy to construct theoretical examples which contradicted the fundamental neoclassical hypothesis of an inverse capital demand function. This paper presents empirical examples for the first time. Thiry-two input-output tables from the OECD database serve as data. As a result, one envelope is found which involves reswitching. Reverse substitution of labour or reverse capital deepening are observed in about 3.65% of tested cases: they involve at least two switchpoints.

Key Words: Cambridge controversy • Reswitching • Reverse capital deepening • Sraffa–von Neumann • Linear programming

JEL classifications: C61, D33, E11

Manuscript received October 20, 2003; final version received August 10, 2005.


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