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Are factor biases and substitution identifiable? The Canadian evidence

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  • Kenneth G. Stewart
  • Jiang Li

Abstract

Revised productivity accounts recently released by Statistics Canada are used to estimate a KlumpMcAdamWillman (KMW) normalized CES supply-side system for the half-century 19612012. The model permits distinct rates of factor-augmenting technical change for capital and labour that distinguish between short-term versus long-term effects, as well as a non-unitary elasticity of substitution and time-varying factor shares. The advantage of the Canadian data for this purpose is that they provide a unified treatment of measurement issues that have had to be improvised in the US and European data used by previous researchers. In contrast to previous results, we find that an elasticity of substitution and distinct factor biases of technological progress are not well determined by the model. For the Canadian data, the KMW model does not appear to provide a framework that overcomes the classic DiamondMcFaddenRodriguez non-identification result. That impossibility theorem is manifested in our findings, not overcome by them.

Suggested Citation

  • Kenneth G. Stewart & Jiang Li, 2018. "Are factor biases and substitution identifiable? The Canadian evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 51(2), pages 528-548, May.
    • Handle: RePEc:cje:issued:v:51:y:2018:i:2:p:528-548
    DOI: 10.1111/caje.12330
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    Cited by:

    1. Kemnitz, Alexander & Knoblach, Michael, 2020. "Endogenous sigma-augmenting technological change: An R&D-based approach," CEPIE Working Papers 02/20, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    2. Michael Knoblach & Fabian Stöckl, 2020. "What Determines The Elasticity Of Substitution Between Capital And Labor? A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 847-875, September.
    3. Daan Steenkamp, 2018. "Factor Substitution and Productivity in New Zealand," The Economic Record, The Economic Society of Australia, vol. 94(304), pages 64-79, March.
    4. Michael Knoblach & Martin Roessler & Patrick Zwerschke, 2020. "The Elasticity of Substitution Between Capital and Labour in the US Economy: A Meta‐Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(1), pages 62-82, February.
    5. Samuele Ialenti & Guido Pialli, 2024. "The increase in the elasticity of substitution between capital and labour: a repeated cross-country investigation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 33(3), pages 380-400, April.
    6. Juan Qian & Ruibing Ji, 2022. "Impact of Energy-Biased Technological Progress on Inclusive Green Growth," Sustainability, MDPI, vol. 14(23), pages 1-24, December.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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