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A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries

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  • Sebastián Claro

    ()
    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

This paper presents a simple methodology to estimate the elasticity of substitution between labor and capital for firms operating in perfectly competitive markets with CRS production functions. It is applied in a cross-country sample to 28 3-digit ISIC manufacturing industries. The econometric procedure relies on measures of sectorial capital stock, that are estimated for a sample of more than 30 countries. Unlike older studies, the estimates are consistent with hicks-neutral cross-country technology differences. The results reveal that in most industries the elasticity of substitution is smaller than one, rejecting the null hypothesis of Cobb-Douglas production functions. The paper provides then an estimation of ¾LK at a level of aggregation extremely useful for research in the international trade literature.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 226.

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Date of creation: 2002
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Publication status: Published as "A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries", Cuadernos de Economía, Vol. 40, Nº 120, pp. 239-257, 2003.
Handle: RePEc:ioe:doctra:226

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  1. Vittorio Corbo & Patricio Meller, 1982. "The Substitution of Labor, Skill, and Capital: Its Implications for Trade and Employment," NBER Chapters, in: Trade and Employment in Developing Countries, vol. 2: Factor Supply and Substitution, pages 193-214 National Bureau of Economic Research, Inc.
  2. Berndt, Ernst R & Christensen, Laurits R, 1973. "The Internal Structure of Functional Relationships: Separability, Substitution and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 403-10, July.
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Cited by:
  1. Sebastián Claro, 2003. "Tariffs, Technology and Global Integration," Documentos de Trabajo 240, Instituto de Economia. Pontificia Universidad Católica de Chile..
  2. Julia Hall & Grant Scobie, 2005. "Capital Shallowness: A Problem for New Zealand?," Treasury Working Paper Series 05/05, New Zealand Treasury.
  3. Sebastián Claro, 2005. "Understanding International Differences in Trade and Capital Market Integration," Documentos de Trabajo 285, Instituto de Economia. Pontificia Universidad Católica de Chile..
  4. Fullerton, Don & Heutel, Garth, 2007. "The general equilibrium incidence of environmental taxes," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 571-591, April.
  5. Sebastián Claro, 2004. "Vertical and Horizontal Dimensions of Trade Liberalization," Documentos de Trabajo 265, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. Wong, Tsz-Nga & Yip, Chong K., 2010. "Indeterminacy and the elasticity of substitution in one-sector models," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 623-635, April.
  7. Cristián Mardones Poblete, 2010. "Evaluando Reformas Tributarias en Chile con un Modelo CGE," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 243-284, December.
  8. Islam, Asif & López, Ramón, 2011. "Fiscal spending for economic growth in the presence of imperfect markets," CEPR Discussion Papers 8709, C.E.P.R. Discussion Papers.
  9. Marcos Minoru Hasegawa, 2010. "The Tax Policy in the Chilean Economy: a Regional Applied General Equilibrium Analysis," Documentos de Trabajo en Economia y Ciencia Regional 05, Universidad Catolica del Norte, Chile, Department of Economics, revised Dec 2010.

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