CHALLENGES FOR FRANCE IN THE EMERGING INTERNATIONAL ENVIRONMENT: A DYNAMIC ANALYSIS

France faces substantial challenges as the economic integration of Europe and the international economy continues. This article uses a dynamic aggregate translog cost function with inputs of capital, labor, and imports to examine the likely impact of closer world economic ties on France. This technique allows one to estimate short- as well as long-run direct price elasticities of demand for the inputs and cross-price elasticities for each respective input pair. The findings of the article include that (1) the French economy is becoming more sensitive to changes in import prices and (2) all the inputs are substitutes for one another. These results suggest that continuing international economic integration will present substantial challenges to the French economy. The short-run estimates of direct and cross-price elasticities are consistent with the Le Châtelier principle, except for the cross-price elasticities between capital and labor. Some possible reasons for the latter result are discussed in the article. (JEL F14, O10, O12)     

Measuring Price Responsiveness Under a Profit Maximization Framework

The distinguishing feature of the study is in using a globally flexible functional form that permits one to calculate different types of elasticities under both constant and variable output hypotheses. The Symmetric Generalized McFadden cost function alongwith the output supply condition form the basis of the econometric model. To measure inputsubstitutabilities, we used Alien-Uzawa, Morishima, and Shadow elasticities of substitution. Empirical results, based on 300 farm households from West Bengal, India, show that fertilizer is most price sensitive input. It is a gross substitute for manure and human labor but complement to bullock labor. Manure is a gross substitute for all the inputs whereas human labor is gross complement to bullock labor. Using the Morishima measure we find that the fertilizer and bullock labor are complements when the price of the latterchanges. Similar complementary relationship is found between bullock and human labor due to changes in the price of human labor. All other inputs are Morishima substitutes. The Shadow elasticity of substitution estimates indicate that all factors are substitutes. The estimate of returns to scale indicates the presence of diminishing returns to scale.

     

European Integration and Production in the French Economy

Effects of greater European integration on the French economy are explored with an aggregate cost function. Input direct price elasticities are inelastic, but greatest (absolute value) for capital and lowest for imports. Cross-price elasticities suggest inputs are substitutes and are higher for domestic inputs than domestic input and imports pairs. As trade restrictions fall, effects on domestic input demand may increase as substitution elasticities rise. Inverse output supply price elasticities indicate domestic input prices are relatively important factors affecting consumption goods prices and import prices more important for investment goods. Thus, import price decreases may stimulate investment and growth. (JEL F14 , O10 , O12 )     

The Italian Automotive Industry and Economies of Scale

This article investigates scale economies in the Italian automobile industry as well as substitution possibilities between inputs and direct and cross-price elasticities of factor demand, utilizing a cost function with capital, labor, domestic, and imported intermediate goods inputs. Continuing European integration makes economies of scale an important issue. The study results are consistent with economies of scale in the Italian motor vehicle industry, a particularly interesting finding because the Italian automotive industry consists primarily of one firm, Fiat. The estimated direct price elasticities suggest that capital is most responsive to own price changes, and estimated cross elasticities imply that all inputs are substitutes. (JEL D 2, L 6, O 1)     

Factor analysis of demand growth for information technology input in Japan

The purpose of this article is to decompose demand changes for factor input and explore the factor that information technology (IT) capital stock has largely increased in Japan. The Allen partial elasticities of substitution are calculated and the variations in factor input demand are broken down into two effects—price effect and output effect, using industry-level data. From an estimation of the total cost function, the following conclusions are presented. While IT capital stock and ordinary capital stock are complementary, IT serves as a substitute for labor. The factors influencing the high growth rate in IT capital stock are the decrease in the prices of IT and ordinary capital services, and the increase in the labor price, in addition to the output effect. On the other hand, labor demand declines due to both the downward rigidity of wages and the decrease in prices of two kinds of capital services.     

Changes in income distribution and welfare from greater immigration of unskilled workers

This paper considers the consequences of greater immigration of unskilled labor on income distribution and welfare in the receiving country. To address these issues, both the sending and receiving countries are represented in a static general equilibrium model which distinguishes between skilled and unskilled labor and which allows prices to be determined endogenously. In this framework an inflow of unskilled labor is likely to reduce wages of unskilled labor, but whether capital or skilled labor benefits depends upon demand elasticities, elasticities of substitution in production, and differences across countries in the productivity of unskilled labor. National welfare in the receiving country is likely to rise, to the extent that the relative price of importable goods falls, non-residents already in the country receive lower wages, immigrants receive lower wages than those paid to domestic workers, and immigrants cause little increased demand for public services and transfer programs.     

General equilibrium models with Morishima elasticities of substitution in production

Analytical general equilibrium (AGE) models are important tools that economists use to answer questions about theory and policy. When a production function has three or more inputs, the traditional modeling technique employs Allen elasticities of substitution to represent general functional forms. This paper builds an analytical general equilibrium model using the Morishima elasticity of substitution (MES). Specifically, an existing model using Allen elasticities is reformulated to employ the MES and the new, closed-form solutions are interpreted with additional insights from the reformulation. Importantly, the special case of constant elasticity of substitution (CES) production follows directly when using Morishima elasticities, but not Allen elasticities. This paper also provides a general technique for switching from Allen to Morishima elasticities in any existing AGE model and demonstrates a one-to-one numerical equivalence regardless of the elasticity measure employed. Replicating prior results, plausible parameter values are applied to the reformulated model to analyze the source-side, distributional effects of a pollution tax and highlight how the Allen and Morishima elasticities differ.     

Scale properties and input substitution in mexican electrical equipment manufacturing

This paper investigates the existence of scale economies in the Mexican electrical equipment industry and estimates direct and cross price input demand elasticities using a translog cost function. Although the estimated value of the cost elasticity was consistent with economies of scale, it was significantly less than 1 only at a significance level slightly greater than 5 percent. The estimated cross price elasticities indicated that all of the inputs were substitutes. Nevertheless, while lower trade barriers under the North American Free Trade Agreement, ceteris paribus, may have a short-term adverse effect on the demand for labor in this industry by increasing imports of cheaper capital and intermediate goods, the relatively low values for E_LK and E_LM also support the conclusion that the impact on employment may be relatively small.This project was supported by the Faculty Development Leave Program at the University of Texas at San Antonio.     

时变弹性生产函数与全要素生产率

由于缺乏资本价格等国民核算资料,收入份额法在我国的使用受到一定限制。传统Cobb-Douglas生产函数估计的资本和劳动力产出弹性,反映的只是整个研究时期的一个平均水平,适用于估计整个研究时期的平均贡献率,但用于估计逐期贡献率很可能是有偏的甚至是有误的。本文给出了一个改进生产率增长测算的新思路,系统地提出利用非参数模型、变系数模型、可变参数模型和面板数据模型替代收入份额法,估计不同时期资本和劳动力的时变产出弹性。实证结果表明时变弹性生产函数具有更好的统计性质。     

The impacts of imports and trade liberalization in Brazil: Insights from an aggregate cost function

Brazil has faced and continues to struggle with difficult economic challenges, including achieving noninflationary economic growth and a manageable external deficit. This paper presents the results of the estimation of an aggregate translog cost function with inputs of domestic capital and labor and imports and outputs of consumption and investment goods. The resulting calculated elasticities give insights into the relationships among the inputs, as well as the possible impacts of further reducing international trade barriers. The findings suggest that all of the inputs are substitutes for one another and that an increase in imports may have at least short-run negative effects on the demand for domestic capital and labor. However, imports appear to be particularly important in the production of investment goods, so an increase in imports may result in a more than proportionate increase in the output of those products and enhance the long-term growth of the economy. The responses to current challenges facing Brazil will affect its future economic growth as well as have a broader impact on the international scene. The results described here may help to inform policy makers as they address these issues, particularly with respect to international trade policies.     

Substitution of labour,capital and energy in the manufacturing sector of Pakistan

Share equations of labour, capital, energy and fuel types, derived from translog cost functions, are estimated by Zellner iterative method to obtain elasticities of labour, capital, energy and fuel types and elasticities of substitution between them. Labour, capital and energy appear as substitutes, natural gas and electricity as complements, and other fuels as substitutes.     

Determinants of the demand for imports of Venezuela

In this study we use disaggregated annual data to estimate real income and relative price elasticities of demand for imports of Venezuela. After comparing our estimates with those of previous studies, we conclude that (1) Venezuela has made progress in developing domestic substitutes for imports, and (2) the degree of ‘openness’ in Venezuela increased after 1961. We also find evidence that during the period 1974–1979, the increase in the market value of Venezuela's oil reserves led to an increase in all categories of imports.     

Elasticities of substitution between energy and non-energy inputs in China power sector

Energy substitution is considered as a key process to determine the economic outcome of decisions related to energy and environment policies. The sign and magnitude of energy substitution have been widely debated, and the results are divergent. This paper applies the translog cost function specification to estimate factor share equations based on the energy and non-energy inputs, whose coefficients are used to observe the energy degree of substitutability with the other traditional inputs for power industry in China. The results suggest that energy is the least price sensitive among three production factors. The four types of input elasticities (cross-price, Morishima's, Allen and McFadden's shadow elasticity of substitution) show that there are substantial substitution possibilities between energy and capital, while energy and labor have weak substitution. The findings imply that for power industry in China, to reduce energy consumption, more capital should be invested. With respect to labor, though, it appears less energy-saving potential.     

ESTIMATING THE RELATIONSHIP BETWEEN IMMIGRANT AND NATIVE WORKERS IN AUSTRALIA: A PRODUCTION THEORY APPROACH

The impact of immigration on labour markets depends, among other factors, on the substitutability or complementarity between immigrants and natives. This relationship is examined by treating migrant and native labour, along with capital, as inputs in production process. Estimated price elasticities of substitution between immigrants and native labour suggest that in Australian context, an increase in the wage rate of one group of workers leads to an increased demand for the other. The estimated elasticities of substitution between immigrant and native workers and the complementary relationship between immigrants and capital provide an insight into the complex effects of immigration.     

The demand for imports: Estimates of bilateral trade flows

This paper provides estimates, using a traditional import demand model, of the demand for imports on a bilateral basis among nine industrialized nations. These estimates provide greater detail about price and income elasticities, but in general are consistent with earlier, aggregate import demand studies with respect to conclusions about the effects of secular and cyclical income changes on trade balances and whether sufficiently high price elasticities are present to insure that the Marshall-Lerner stability condition is met.     

Estimating the Heckscher–Ohlin model: Inverting the inverse matrix

This paper estimates the Heckscher–Ohlin model with annual US data from 1949 to 2006 for outputs of manufactures and services with inputs of fixed capital assets and the labor force. Difference equation and error correction regressions provide estimated coefficients for the comparative static system. Tariffs on manufactures primarily raise the capital return in the estimated Stolper–Samuelson results. Factor price equalization does not hold for labor and capital. Inverting the estimated system inverse matrix provides evidence on production. The suggestions are capital biased production of manufactures, strong substitution of capital for labor, and strong labor substitution in manufactures.     

The Le Châtelier Principle and the Demand for Imports in the Short Run and the Medium Run: Australia, 1959–60–1978–79*

This paper examines the role of prices and factor endowments in the determination of Australian imports. We consider two factors, labour and capital. The supply of capital is assumed fixed, labour is assumed fixed in the short run. and variable in the medium run, Direct as well as indirect estimates of short-run and medium-run import price and quantity elasticities are derived. Allowance is made for technological change, and various separability hypotheses are tested. As predicted by the Le Châtelier Principle. the own price elasticity of imports is larger in the medium run than in the short run .     

Modeling technological bias and factor input behavior in China's wheat production sector

Over the past three decades, China has implemented reforms in the agricultural sector in an attempt to increase efficiency and food security. However, China now faces a number of environmental degradation problems, in part, caused by her past agricultural reforms. In this paper we estimate, using a provincial-based panel dataset, a third-order translog cost function for China's grain production sector over the period 1990–2011. Results from the estimation, including estimated elasticities of demand for and substitution of factors, suggest that labor and capital are substitutes. This arises because the increasing cost of labor, induced by urbanization and the growth of the manufacturing sector, has lead to a substitution of machinery for labor in the production of wheat. The results are consistent with current government policies to encourage via subsidies and agricultural mechanization, which we show to be technically, a substitute for labor. We further conclude this will create an additional bonus of reducing the amount of fertilizer that is needed to efficiently and securely produce wheat in China, as the new capital is more efficient at fertilizer distribution.     

Factor Substitutability in Australian Manufacturing with Emphasis on Energy Inputs*

In this paper a model of the production structure in the aggregate Australian manufacturing sector is estimated, emphasizing the use this sector makes of energy inputs. A translog cost function is estimated with time-series data for four inputs, capital services, labour services, energy and materials and likewise an energy submodel is estimated for solid fuels, oil, electricity and gas. The substitutabilily and the complementarity relationships between the various factor inputs and between the various fuels are examined: an interesting finding is that capital and energy are substitutes and labour and energy are complements. Factor price elasticities are calculated and turn out to be quite significant. The study concludes that rising energy prices will induce significant shifts in both the mix of fuel inputs and the level of aggregate energy utilization.     

Oil shocks and the dynamics of substitution adjustments of industrial fuels in the US

This paper investigates substitution among such alternate fuels as coal, natural gas, and electricity during the actual oil price increases of 1970s. These substitution adjustments are assumed to be dynamic and modelled by a partial adjustment structure. This dynamic structure is incorporated into a translog cost technology. Short- and long-run price elasticities are estimated by identifying inter- and intra-industry variations. The models are estimated with a sample of 88 pooled observations, including distillate and residual oils purchased by eleven 2-digit manufacturing groups (1974-81). Models are estimates are strictly negative. These own price elasticities range from (long-to short-run) –2.93 to –2.55 for distillate oil, –0.698 to – 1.53 for residual oil, –0.533 to 0.011 for coal, –0.235 to –0.213 for natural gas, to –0.888 to –0.845 for electricity. Estimastes of both short-run and long-run cross-price elasticities suggest that coal and electric energy are the prominent substitutes for fuel oils. While the relationship between the latter and natural gas remains largely complementary.