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An Estimation of U.S. Industry-Level Capital-Labor Substitution

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Author Info

  • Edward J. Balistreri

    (USTIC)

  • Christine A. McDaniel

    (USITC)

  • Eina Vivian Wong

    (University of Colorado)

Abstract

A key parameter that determines the distributional impacts of a policy shift in general equilibrium models is the elasticity of substitution between capital and labor. Despite the importance of this parameter in applied modeling, its identification continues to pose a challenge. Given the structure of most growth models, we posit that the true relationship between capital and labor is likely to be close to Cobb- Douglas. Using a rich new data set from the Bureau of Economic Analysis, we estimate substitution elasticities for 28 industries, which cover the entire economy, and provide an indication of the long- and short-run estimates. We fail to reject the Cobb-Douglas specification in 20 of the 28 industries. These findings lend support to the Cobb-Douglas specification as a transparent starting point in simulation analysis.

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File URL: http://128.118.178.162/eps/comp/papers/0303/0303001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Computational Economics with number 0303001.

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Length: 26 pages
Date of creation: 27 Mar 2003
Date of revision:
Handle: RePEc:wpa:wuwpco:0303001

Note: Type of Document - PDF; pages: 26; figures: Included
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Web page: http://128.118.178.162

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Keywords: Econometric Methods; Time Series Models; Computable General Equilibrium Models;

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Cited by:
  1. Aaron Drew, 2007. "New Zealand's productivity performance and prospects," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, March.
  2. Michał Konopczyński, 2013. "Fiscal policy within a common currency area – growth implications in the light of neoclassical theory," Contemporary Economics, University of Finance and Management in Warsaw, vol. 7(3), October.
  3. Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
  4. Fachin, Stefano & Gavosto, Andrea, 2007. "The decline in Italian productivity: a study in estimation of long-Run trends in Total Factor Productivity with panel cointegration methods," MPRA Paper 3112, University Library of Munich, Germany.
  5. Hugo Toledo, 2005. "Adjustment to trade reform in Ecuador," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(1), pages 41-53.
  6. Zhenhua Chen, 2013. "Spatial Impact of Transportation Infrastructure: A Spatial Econometric CGE Approach," ERSA conference papers ersa13p241, European Regional Science Association.
  7. Julia Hall & Grant Scobie, 2005. "Capital Shallowness: A Problem for New Zealand?," Treasury Working Paper Series 05/05, New Zealand Treasury.
  8. Stefano Fachin & Andrea Gavosto, 2010. "Trends of labour productivity in Italy: a study with panel co-integration methods," International Journal of Manpower, Emerald Group Publishing, vol. 31(7), pages 755-769, November.
  9. Andrew T. Young, 2010. "US Elasticities of Substitution and Factor-Augmentation at the Industry Level," Working Papers 10-06, Department of Economics, West Virginia University.
  10. Taheripour, Farzad & Khanna, Madhu & Nelson, Charles, 2005. "Welfare Impacts of Alternative Public Policies for Environmental Protection in Agriculture in an Open Economy: A General Equilibrium Framework," 2005 Annual meeting, July 24-27, Providence, RI 19317, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Koesler, Simon & Schymura, Michael, 2012. "Substitution elasticities in a CES production framework: An empirical analysis on the basis of non-linear least squares estimations," ZEW Discussion Papers 12-007, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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