Variation in price and substitution elasticities between sectors ? A microdata analysis
AbstractThe purpose of this study is to determine the substitution and price elasticities of different production inputs in numerous sectors in order to reveal how much these elasticities vary between sectors. These elasticities will be also used in practice in a vast CGE model. With 71 sectors studied, our study covers more sectors than previous literature and includes both manufacturing and services sectors. The analysis is based on a vast company level micro database from year 2000 to 2009. We use two alternative translog-cost function specifications for the estimation of the elasticities and apply seemingly unrelated regressions (SUR) with fixed effects on the panel data. In total we estimate 142 SUR regressions. We find that while the elasticities tend to concentrate around the same level in many sectors, there are also significant differences both in the substitution elasticities and in the own-price elasticities of various input factors between different sectors. However, the elasticities are not found to differ significantly between the manufacturing sectors and services sectors in general. Due to the significant variation between sectors, sector specific elasticities are recommended to be used in computable general equilibrium models and in other applied economic models that are sensitive to these types of elasticities.
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Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 34.
Date of creation: 03 Jul 2012
Date of revision:
Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D33 - Microeconomics - - Distribution - - - Factor Income Distribution
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
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