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Separability and capital aggregation in sectoral models of US production

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  • Michael Hazilla

Abstract

Separability plays a fundamental role in applied studies of production inasmuch as it provides for consistent aggregation and allows multi-stage estimation of models with many inputs. This paper examines whether two types of capital, structures and equipment, are weakly separable from labour and energy and materials in sectoral models of US production, and provides an assessment of the effects of maintaining capital separability. The study focuses on the elasticity of substitution as a measure of input association and associated standard errors and confidence intervals based on bootstrapping. Elasticity estimates and tests indicate that capital separability is generally inconsistent with data representing sectoral US production. Elasticity sign, however, appears robust to capital aggregation and performs especially well as an indicator of input association.

Suggested Citation

  • Michael Hazilla, 1997. "Separability and capital aggregation in sectoral models of US production," Applied Economics, Taylor & Francis Journals, vol. 29(7), pages 955-974.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:7:p:955-974
    DOI: 10.1080/000368497326615
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    1. Geweke, John, 1996. "Monte carlo simulation and numerical integration," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 15, pages 731-800, Elsevier.
    2. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, Decembrie.
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    1. Albert A. Okunade, 1999. "Will the real elasticity of substitution ‘in Norwegian dentistry’ please stand up?," Health Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 221-232, May.
    2. Richmond, J, 2000. "Separability and Specification Tests," Economics Discussion Papers 8832, University of Essex, Department of Economics.

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