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Estimation of Substitution Parameter in Indian Industries: A disaggregated approach

Author

Listed:
  • Rajesh Chadha
  • Sanjib Pohit
  • P.L. Bina
  • N. Sangeeta

    (National Council of Applied Economic Research)

Abstract

In the past, growth models have been constructed and analyzed with the help of a production function subject to certain restrictive features. For quite some time, the Cobb-Douglas production function (CD) with its input exponents adding upto unity and a unitary elasticity of substitution were mostly used by the economists for analysis. In recent times, the constant elasticity of substitution production function (CES) which includes CD, as well as Leontif production function as its special case has been widely used in various studies. One major limitation of this production function is that the elasticity of substitution parameter is not variable along an isoquant, though it can take different values for different values for different industries. We have made an attempt to test whether the estimated values of elasticity of substitution between labour and capital for a sector tend to change from one year to another and also whether it is CD or CES production function that characterizes a particular sector.

Suggested Citation

  • Rajesh Chadha & Sanjib Pohit & P.L. Bina & N. Sangeeta, 1996. "Estimation of Substitution Parameter in Indian Industries: A disaggregated approach," NCAER Working Papers 62, National Council of Applied Economic Research.
    • Handle: RePEc:nca:ncaerw:62
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    References listed on IDEAS

    as
    1. S. Clemhout, 1968. "The Class of Homothetic Isoquant Production Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(1), pages 91-104.
    2. Kazi, Umar A, 1980. "The Variable Elasticity of Substitution Production Function: A Case Study for Indian Manufacturing Industries," Oxford Economic Papers, Oxford University Press, vol. 32(1), pages 163-175, March.
    3. Jora R. Minasian, 1961. "Elasticities of Substitution and Constant-Output Demand Curves for Labor," Journal of Political Economy, University of Chicago Press, vol. 69(3), pages 261-261.
    4. Marc Nerlove, 1967. "Recent Empirical Studies of the CES and Related Production Functions," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 55-136, National Bureau of Economic Research, Inc.
    5. C. A. Knox Lovell, 1968. "Capacity Utilization and Production Function Estimation in Postwar American Manufacturing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(2), pages 219-239.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Industry;

    JEL classification:

    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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