Factor substitution in production in industrialized and less developed countries
Demekas, Dimitris G. | Klinov, Ruth
The paper develops and estimates a simple transcendental logarithmic model of production for three developing countries. The hypothesis of separability of imported inputs from the primary factors is tested and rejected, and estimates of the substitution elasticities are calculated. The results, combined with those from the related literature, show that the factor substitution patterns are systematically different in developed and developing countries. This difference has important implications for the way these economies and, in particular, their labor markets respond to external shocks.
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