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Production and costs in the South African motor vehicle industry

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  • Lila Truett
  • Dale Truett

Abstract

This study investigates the existence of economies of scale in the South African motor vehicle industry as well as the substitution possibilities between input pairs and the direct and cross-price elasticities of demand for the various inputs. Because of data limitations, a translog cost function was estimated for only a three input model corresponding to a homogeneous production function involving capital, labour and intermediate goods. The issue of the existence of economies of scale in the South African motor vehicle industry is a particularly important one because South Africa once again is a member of GATT and a full participant in the international trade arena. The null hypothesis of constant returns to scale was rejected at the 0.5% level of significance. Thus, the results of this model are certainly consistent with economies of scale in the South African motor vehicle industry. The estimated direct price elasticities were consistent with the hypothesis that, during the past two decades, capital was the productive factor with the most elastic demand, and the estimated cross-elasticities between input pairs generally supported the hypothesis that all inputs are substitutes.

Suggested Citation

  • Lila Truett & Dale Truett, 2006. "Production and costs in the South African motor vehicle industry," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2381-2392.
  • Handle: RePEc:taf:applec:v:38:y:2006:i:20:p:2381-2392 DOI: 10.1080/00036840600865734
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    References listed on IDEAS

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    1. Catherine J. Morrison Paul & Donald Siegel, 1999. "Estimation of Scale Economies Underlying Growth and Productivity: The Empirical Implications of Data Aggregation," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 739-756, April.
    2. Westbrook, M Daniel & Tybout, James R, 1993. "Estimating Returns to Scale with Large, Imperfect Panels: An Application to Chilean Manufacturing Industries," World Bank Economic Review, World Bank Group, vol. 7(1), pages 85-112, January.
    3. Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991. "The effects of trade reforms on scale and technical efficiency : New evidence from Chile," Journal of International Economics, Elsevier, vol. 31(3-4), pages 231-250, November.
    4. Fuss,Melvyn A. & Waverman,Leonard, 1992. "Costs and Productivity in Automobile Production," Cambridge Books, Cambridge University Press, number 9780521341417, March.
    5. Justin Barnes & Raphael Kaplinsky, 2000. "Globalization and the Death of the Local Firm? The Automobile Components Sector in South Africa," Regional Studies, Taylor & Francis Journals, vol. 34(9), pages 797-812.
    6. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
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    Cited by:

    1. Truett, Lila J. & Truett, Dale B., 2014. "The South Korean auto industry's path to maturity," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 86-94.

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