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Are factor biases and substitution identifiable? The Canadian evidence

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Abstract

Revised productivity accounts recently released by Statistics Canada are used to estimate a Klump-McAdam-Willman normalized CES supply-side system for the half-century 1961-2012. The model permits distinct rates of factor-augmenting technical change for capital and labour that distinguish between short-term versus long-term effects, as well as a non-unitary elasticity of substitution and timevarying factor shares. The advantage of the Canadian data for this purpose is that they provide a unified treatment of measurement issues that have had to be improvised in the US and European data used by previous researchers. In contrast to previous results, we find that an elasticity of substitution and distinct factor biases of technological progress are not well determined by the model. For the Canadian data, the KMW model does not appear to provide a framework that overcomes the classic Diamond-McFadden- Rodriguez non-identification result. That impossibility theorem is manifested in our findings, not overcome by them. JEL Classification: C51, E23, E25, O30, O51

Suggested Citation

  • Ken Stewart & Jiang Li, 2018. "Are factor biases and substitution identifiable? The Canadian evidence," Department Discussion Papers 1808, Department of Economics, University of Victoria.
  • Handle: RePEc:vic:vicddp:1808
    Note: ISSN 1914-2838
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    Cited by:

    1. Michael Knoblach & Fabian Stöckl, 2020. "What Determines The Elasticity Of Substitution Between Capital And Labor? A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 847-875, September.
    2. Daan Steenkamp, 2018. "Factor Substitution and Productivity in New Zealand," The Economic Record, The Economic Society of Australia, vol. 94(304), pages 64-79, March.
    3. Michael Knoblach & Martin Roessler & Patrick Zwerschke, 2020. "The Elasticity of Substitution Between Capital and Labour in the US Economy: A Meta‐Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(1), pages 62-82, February.
    4. Kemnitz, Alexander & Knoblach, Michael, 2020. "Endogenous sigma-augmenting technological change: An R&D-based approach," CEPIE Working Papers 02/20, Technische Universität Dresden, Center of Public and International Economics (CEPIE).

    More about this item

    Keywords

    normalized CES system; aggregate elasticity of substitution; biased technical change;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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