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- Title
Alternative Methods of Estimating a CES Production Function for Britain.
- Authors
Feldstein, Martin S.
- Abstract
In recent years the elasticity of substitution between capital and labor has been recognized as a basic characteristic of the technology of an industry or an entire economy with important implications for international trade, distribution, growth and taxation. A substantial number of studies have now provided estimates of the substitution elasticity for the United States economy and for individual American industries[2, 4, 6, 7, 8, 10, 11, 12, 13, 15, 20].[2] No estimates for Britain have been reported previously. <BR> The current study began by estimating the elasticity of substitution using British inter-industry data. The values obtained by using the "indirect" estimation procedure originally proposed by Arrow et al. [2, referred to below as ACMS] vary substantially from year to year. An alternative "direct" method of estimation was then applied; these results suggest a substantially higher elasticity. <BR> Section I of this article reviews the basic theory of the constant elasticity of substitution (CES) production function and presents the estimates obtained for Britain. Some objections to the traditional indirect estimation method are discussed in Section II. Section III describes an alternative procedure and presents the resulting estimates. Section IV comments on several other CES estimation procedures.
- Subjects
UNITED Kingdom; PRODUCTION functions (Economic theory); ELASTICITY (Economics); SUBSTITUTION (Economics); LABOR market
- Publication
Economica, 1967, Vol 34, Issue 136, p384
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2552090