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Quasi-fixed inputs in the Italian manufacturing: The case of the pharmaceutical industry

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  • Lorenzo Carbonari

    (Department of Economics and Law University of Rome “Tor Vergata”)

Abstract

The aim of this paper is to study the demand for inputs in the Italian manufacturing, using firm-level data on pharmaceutical industry. The Italian pharmaceutical industry is characterized by the existence of long-term labor contracts, and this fact suggests considering labor as quasi-fixed input. In order to characterize firms’ behavior we base our analysis on the restricted Generalized Leontief cost function. The choice of this flexible functional form is due to its ability to capture the input substitution patterns in presence of more than one quasi-fixed input. Therefore demand and substitution elasticities are estimated with respect to two different theoretical models: the first, QFI (1), with capital as quasi-fixed input and the second, QFI (2), with two quasi-fixed inputs, capital and labor. The choice among the two alternative specifications is based on an elasticity comparison criterion, since the two models are not nested. The results suggest a rigid productive structure during the period under observation. Our results confirm the a priori on the labor market rigidity and point out the high heterogeneity between the firms, even controlling for size and nationality.

Suggested Citation

  • Lorenzo Carbonari, 2012. "Quasi-fixed inputs in the Italian manufacturing: The case of the pharmaceutical industry," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 25(1), pages 51-69.
    • Handle: RePEc:ris:apltrx:0163
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    References listed on IDEAS

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    1. Roxana Bobulescu & Celine Soulas, 2006. "Innovation and firm size in the pharmaceutical industry," International Journal of Business Environment, Inderscience Enterprises Ltd, vol. 1(2), pages 253-264.
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    6. Giuseppe Russo & David Veredas, 2000. "Institutional Rigidities and Employment on the Italian Labour Market: the Dynamic of the Employment in the Large Industrial Firms," CELPE Discussion Papers 53, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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