IDEAS home Printed from https://ideas.repec.org/a/taf/ecsysr/v37y2025i4p650-675.html

The impact of sectoral aggregation on the elasticities of substitution in modeling translog cost functions

Author

Listed:
  • Gilang Hardadi
  • Stefan Pauliuk

Abstract

The appropriate level of sector aggregation should adequately capture sectoral variations in elasticities while adhering to the regularity conditions of the aggregate production function. This study uses EU-KLEMS panel data on production inputs and price indices, along with EXIOBASE v3.6 time-series data (1995–2016), to investigate the impact of sector aggregation on modeling translog cost function and to determine the optimum resolution level. The cost function is modelled using dynamic translog in the Generalized Method of Moments (GMM) estimation method, which better addresses concavity violations compared to pooled or fixed-effect models. Selecting a higher resolution level improves model fittings, although it occasionally leads to increased concavity violations. The optimized level of sector aggregation obtained is at 86 sectors, capturing the different elasticities of substitution in manufacturing sectors of basic materials and electricity production. Addressing this elasticity variation is crucial, especially in modeling energy policies.

Suggested Citation

  • Gilang Hardadi & Stefan Pauliuk, 2025. "The impact of sectoral aggregation on the elasticities of substitution in modeling translog cost functions," Economic Systems Research, Taylor & Francis Journals, vol. 37(4), pages 650-675, October.
    • Handle: RePEc:taf:ecsysr:v:37:y:2025:i:4:p:650-675
    DOI: 10.1080/09535314.2025.2534606
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09535314.2025.2534606
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09535314.2025.2534606?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ecsysr:v:37:y:2025:i:4:p:650-675. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CESR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.