Translog Cost Functions: An Application for Mexican Manufacturing

Salgado Banda Héctor and Bernal Verdugo Lorenzo E.
Authors registered in the RePEc Author Service: Lorenzo Ernesto Bernal-Verdugo

No 2007-08, Working Papers from Banco de México

Abstract: We use translog cost functions to estimate own-price and substitution elasticities of input demands, economies of scale and average costs in Mexican manufacturing. Data from the Mexican Annual Industrial Survey is used for 1996, 2000 and 2003 . We show that a model that allows for nonhomotheticity and nonunitary elasticities of substitution is appropriate to represent the production structure. Allen-Uzawa elasticities indicate the existence of substitution possibilities amongst inputs. The demand for electricity is essentially unitary elastic. All cross-price elasticities are less than one. Both scale economies and average costs diminish as the size of activity class increases. Economies of scale increased for any level of output. The differences in average costs between small and large activity classes were reduced and some disparities prevail in a number of manufacturing groups.

JEL-codes: C3 D24 L60 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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