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Testing Multiple Non-nested Factor Demand Systems


  • Matteo Manera
  • Michael McAleer


Empirical factor demand analysis typically involves making a choice from among several competing non-nested functional forms. Each of the commonly used factor demand systems, such as Translog, Generalized Leontief, Quadratic, and Generalized McFadden, can provide a valid and useful empirical description of the underlying production structure of the firm. As there is no theoretical guidance on selecting the model which is best able to capture the relevant features of the data, formal testing procedures can provide additional information. Paired and joint univariate nonnested tests of a null model against both single and multiple alternatives have been discussed at length in the literature, whereas virtually no attention has been paid to either paired or joint multivariate non-nested tests. This paper shows how some multivariate non-nested tests can be derived from their univariate counterparts, and examines how to use these tests empirically to compare alternative factor demand systems. The empirical application involves the classical Berndt- Khaled annual data set for the U.S. manufacturing sector over the period 1947-1971. A statistically adequate empirical specification is determined for each competing factor demand system. The empirical results are interpreted for each system, and the models are compared on the basis of multivariate paired and joint non-nested procedures.

Suggested Citation

  • Matteo Manera & Michael McAleer, 2001. "Testing Multiple Non-nested Factor Demand Systems," ISER Discussion Paper 0543, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0543

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    References listed on IDEAS

    1. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
    2. Michael McAleer, 1981. "Exact Tests of a Model Against Non-Nested Alternatives," Working Papers 431, Queen's University, Department of Economics.
    3. Barten, A.P. & Mcaleer, M., 1991. "Comparing The Empirical Perfomance Of Alternative Demand Systems," Papers 9002a, Tilburg - Center for Economic Research.
    4. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    5. Edward R. Morey, 1986. "An Introduction to Checking, Testing, and Imposing Curvature Properties: The True Function and the Estimated Function," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 207-235, May.
    6. McFadden, Daniel, 1978. "The General Linear Profit Function," Histoy of Economic Thought Chapters,in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 5 McMaster University Archive for the History of Economic Thought.
    7. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-268, August.
    8. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    9. Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
    10. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-1245, December.
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    Cited by:

    1. Panos Pashardes & Nicoletta Pashourtidou, 2011. "Consumer welfare from publicly supplemented private goods: age and income effects on demand for health care," Empirical Economics, Springer, vol. 41(3), pages 865-885, December.
    2. Matteo Manera & Bruno Sitzia, 2005. "Empirical factor demands and flexible functional forms: a bayesian approach," Economic Systems Research, Taylor & Francis Journals, vol. 17(1), pages 57-75.

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